UNDERVALUED STOCKS 2020-Boeing Stock Analysis

Boeing is planning to suspend production of its beleaguered 737 Max planes next month, the company said Monday, a drastic step after the Federal Aviation Administration said its review of the planes would continue into next year.

Our Dec 2020 price target is $400. Our price target is a 6.5% yield on our 2022 FCF/share estimate of $28 discounted back one year. Downside risks include further reduction in 787 production rate, a decline in demand for new aircraft, poor execution on core commercial programs, and a decline in defense earnings. Also, escalation of global trade tensions could weigh on investors’ perception of underlying aerospace fundamentals. In addition, we could see lower cash flow and earnings due to issues related to the 737 MAX program.

Boeing Co. will halt production of the grounded 737 Max in January, a move that will deepen the crisis engulfing the planemaker, complicate its eventual recovery and ripple through the U.S. economy.
Employees at the Seattle-area factory where the Max is built will continue 737-related work or be temporarily reassigned to other programs, the company said in a statement Monday. No layoffs are planned for now, said a person familiar with the matter.
The production pause deepens one of the worst crises in Boeing’s 103-year history, as the company waits for regulators to clear its best-selling plane to resume commercial flights. The factory shutdown will also jolt a supplier base that stretches from the Seattle area to Kansas, adding a headwind for U.S. industry ahead of the 2020 elections.
Financial pressure on Boeing is rising as almost 400 newly built aircraft languish in storage due to a global flying ban that began nine months ago. The timing of regulatory approval for the jet’s return is uncertain, with Boeing’s relationship with U.S. Federal Aviation Administration in tatters.
“We believe this decision is least disruptive to maintaining long-term production system and supply chain health,” the company said. The decision is based on such considerations as “the extension of certification into 2020, the uncertainty about the timing and conditions of return to service and global training approvals, and the importance of ensuring that we can prioritize the delivery of stored aircraft.”


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