05/10/2020 - Boeing study from different forums
While I was looking if it is a good time to buy Boeing, the airline maker, I found this interesting article in one of the fora. I am copy-pasting one of the interesting analysis on Boeing for my own perusal and anyone who come to this site.
If you want to belong on this stock you have to be willing to put aside your capital for 2 to 5 years. BA like the airline industry is a cyclical stock that goes up and down with the economy. The current low of BA is not different than Airbus with both stocks down exactly 59% YTD. This theory of BA has poor management, 737 Max issues, and tons of debt is overblown.
Fundamentals have improved over the last week with the management making the right decisions.
1.BA is getting to be a lean company which is the need of the hour. Cutting down the workforce, decrease the inventory rate will help reduce CAPEX and decrease cash burn. While the economy gets better BA can continue to grow revenue through the defense contracts and servicing existing customers. Commercial aircraft growth will take a couple of years to come to the level of 2019.
2. The big issue that would have bothered investors was possible solvency. THAT AINT HAPPENING NOW! BA has an existing $15 Billion cash and was able to generate another $25 Billion through the credit market.BA was expecting $10-15 Billion but investors have shown great faith in the long-term performance of BA. This was the best outcome for BA since rates were very favorable. Even if the COVID issue and low flight operations continue for the next 2-3 years BA will not need to look for further funding.
3.BA does not need to worry about building debt. Boeing inventory for the quarter ending March 31, 2020, was $76.62B. Once deliveries start happening debt can be cleared easily.
4. The recent cancellation of the orders again is not an issue. Boeing of late has 5700 orders pending and in any given situation would unlikely have started working on new orders. These are future orders and will come back again once the aviation industry improves. For now, BA wants to reduce its capacity and CAPEX so cancellations help BA to reduce stress on its workflow.
5. The aviation industry will only go up with globalization and customer willingness to fly outside and within the country. Based on FAA data the forecast for the aviation industry shows a steady growth between 2020-2040.
6. Even if the commercial airline part of BA is taken apart and completely stopped. BA's existing defense contract and service will justify more than the current market cap (Use LMT as a reference and do the math).
7. Most importantly BA lies in a duopoly with AIRBUS. The barrier to entry in the aviation industry is just too high. It will take Billions of dollars of expenditure before you can even make a wing of an airplane. Boeing holds more than 7400 active patents registered around the world in aviation and 100 years of experience in aircraft manufacturing. The knowledge, skill set needed along with the legislative requirements makes an exhaustible barrier to entry. AIRBUS, for example, took 7 years from its creation to its maiden flight in 1972 (A300) and it needed European countries to come together to see it through.
The bottom line is you have to know what you buy. The question is do you want to buy a part of this business that Boeing has to offer. The rest is all noise.
If you want to belong on this stock you have to be willing to put aside your capital for 2 to 5 years. BA like the airline industry is a cyclical stock that goes up and down with the economy. The current low of BA is not different than Airbus with both stocks down exactly 59% YTD. This theory of BA has poor management, 737 Max issues, and tons of debt is overblown.
Fundamentals have improved over the last week with the management making the right decisions.
1.BA is getting to be a lean company which is the need of the hour. Cutting down the workforce, decrease the inventory rate will help reduce CAPEX and decrease cash burn. While the economy gets better BA can continue to grow revenue through the defense contracts and servicing existing customers. Commercial aircraft growth will take a couple of years to come to the level of 2019.
2. The big issue that would have bothered investors was possible solvency. THAT AINT HAPPENING NOW! BA has an existing $15 Billion cash and was able to generate another $25 Billion through the credit market.BA was expecting $10-15 Billion but investors have shown great faith in the long-term performance of BA. This was the best outcome for BA since rates were very favorable. Even if the COVID issue and low flight operations continue for the next 2-3 years BA will not need to look for further funding.
3.BA does not need to worry about building debt. Boeing inventory for the quarter ending March 31, 2020, was $76.62B. Once deliveries start happening debt can be cleared easily.
4. The recent cancellation of the orders again is not an issue. Boeing of late has 5700 orders pending and in any given situation would unlikely have started working on new orders. These are future orders and will come back again once the aviation industry improves. For now, BA wants to reduce its capacity and CAPEX so cancellations help BA to reduce stress on its workflow.
5. The aviation industry will only go up with globalization and customer willingness to fly outside and within the country. Based on FAA data the forecast for the aviation industry shows a steady growth between 2020-2040.
6. Even if the commercial airline part of BA is taken apart and completely stopped. BA's existing defense contract and service will justify more than the current market cap (Use LMT as a reference and do the math).
7. Most importantly BA lies in a duopoly with AIRBUS. The barrier to entry in the aviation industry is just too high. It will take Billions of dollars of expenditure before you can even make a wing of an airplane. Boeing holds more than 7400 active patents registered around the world in aviation and 100 years of experience in aircraft manufacturing. The knowledge, skill set needed along with the legislative requirements makes an exhaustible barrier to entry. AIRBUS, for example, took 7 years from its creation to its maiden flight in 1972 (A300) and it needed European countries to come together to see it through.
The bottom line is you have to know what you buy. The question is do you want to buy a part of this business that Boeing has to offer. The rest is all noise.
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