With A Bailout Deal All But Ruled Out, Boeing’s Stock Could Potentially Fall To $60

Dreading the two-hour security line ahead of your international flight? Turns out, there are no lines, or for that matter, many passengers flying nowadays. Airlines have reduced capacity by almost 90% due to lockdowns in major destinations. The COVID-19 pandemic has hurt the demand for a slew of products and services globally, including air travel. As the commercial airplanes segment contributes nearly 42% of Boeing’s (NYSE: BA) top line, a reduction in capital expenditures planned by major U.S. carriers would significantly trim the company’s order backlog. The scheduled first-quarter results on April 29 will confirm the ground reality.

After the grounding of MAX aircraft by the FAA last March, Boeing’s commercial aircraft deliveries took a substantial hit and dropped from 806 airplanes in 2018 to 380 in 2019. Due to a temporary halt of MAX production, Boeing’s commercial aircraft deliveries are expected to remain flat for FY2020. However, the ongoing coronavirus pandemic has had a material impact on all airline carriers, resulting in increased leverage and grants to cover operational expenses. Thus, Boeing’s order backlog might observe a significant reduction from low travel demand.

Due to order cancellations from airline carriers, investors could revise their expectations for Boeing’s total revenues further downwards by 25% to $58 billion for FY2020 and further reduce projection for the coming years. After a 25% drop in total revenues for the year, Boeing’s total revenues might not recover much next year either – resulting in investors revising Boeing’s P/S multiple to the level of 1x seen in 2016. Our dashboard shows the impact of a reduction in Boeing’s P/S multiple to 1x, leading to a likely $60 stock price or lower for Boeing. Moreover, our dashboard forecasting US COVID-19 cases with cross-country comparisons lays the groundwork for the expected recovery time-frame and spread.

#1. Boeing’s Revenues could decline by 25% for FY2020 

Boeing reported $76.5 billion in Total Revenues for FY2019. This includes three operating segments:

• Commercial Airplanes: $32 billion in FY2019 (42% of Total Revenues). This segment develops and produces commercial jet aircraft and provides fleet support services to the commercial airline industry worldwide.
• Defence Space & Security: $26 billion in FY2019 (34% of Total Revenues). This segment is engaged in the research, development, production, and modification of manned and unmanned military aircraft and weapon systems.
• Global Services: $18 billion in FY2019 (24% of Total Revenues). This segment provides services to the company’s commercial and defense customers worldwide.

#2. This would imply a $60 price estimate for Boeing stock

• Boeing stock could fall to levels of $60 if the P/S declines to about 1x, with the total sales of $58 billion in FY2020.
• Boeing’s P/S has seen sharp declines in the past. For instance, over the Great Recession, Boeing’s P/S declined from 1.5x at the end of 2007 to 0.6x in 2008.
• A P/S multiple of 1x for Boeing’s stock, hence, looks plausible given current market conditions.

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