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Boeing

So, we shorting it orrrrrrr what?

PS: I hope to God I never fly on another Boeing airplane in my life again.

¯\_(ツ)_/¯ It be like that sometimes.

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we fly high! no lie! you know thisssssss

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

we fly high! no lie! you know thisssssss

Stacking gouda, feta, cheddar cheese, n ravioliiiiiiiiiiii

¯\_(ツ)_/¯ It be like that sometimes.

You have two producers in a duopoly with 7 year backlogs secured by significant deposits already struggling to meet demand and limited ability to ramp production and net debt to EBITDA of a whopping 0.3x with free cash flow of >$10B and an issue on one plane that will likely be resolved with a software patch and was largely a result of poor pilot training in third world countries.  Any US pilot would have landed either of those planes without incident by simply following training and disengaging the elevators.

#FreeCVM #FreeTurd #2007-2017

This 737 thing will probably blow over sooner or later, but I think people are also questioning their valuation, including with the entrenched position. Plus, although airlines have few competing aircraft manufacturers to choose from, demand for aircrafts is probably cyclical, as vacations and shipping demand depend on economic strength. Airplanes are also apparently the #1 non-farm export of the US to China and so, it is affected by trade war. I don’t know what the price is. I am just saying this 737 MAX thing is not the only thing that is weighing on BA stock. 

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

Ok, so personally and this falls in my realm, I am actually a bear on Boeing for the reasons you stated basically and have a long documented track record on here for being WAAAY too early bearish on this stock (so grain of salt).  They have stepped down production, are building major working capital right now from planes they can’t deliver until they are cleared by regulators and compensation to airlines and I do think China will drag their feet at clearing them for Chinese airspace as a tool if the trade fight continues (which may or not happen).  It is very late in the aircraft cycle, but that said the multi-year backlogs are funded with deposits and also not something to completely ignore.  So I agree with what you’re saying and as a mid to long term investor I’m avoiding them at this stage, but my point was that to call this out as a short given some of the strong fundamentals is, I think a very reckless short from the standpoint of OP’s 737=bad analysis.  Also, I think it’s silly.

#FreeCVM #FreeTurd #2007-2017

18x earnings. But their balance sheet sucks up the ass. Their bottom line growth has been amazing. Top line has been good. Their margins have expanded a lot. They are being valued for their earnings which according to bs is pretty ***** secure. As long as there is more growth without balance sheet degradation. This stock is bomb. But I don’t think that the growth is enough. They’ve done a lot of share buybacks and dividends. Literally like 10b to 15b a year. So they are big on ****ing up their balance sheet and rewarding their investors. Anyways despite this they have grown like a beast. Anyways I don’t like the airline industry, Im good with defense. But overall I wouldn’t buy the stock cuz their entire operation is financed by debt! 

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

18x earnings. But their balance sheet sucks up the ass. Their bottom line growth has been amazing. Top line has been good. Their margins have expanded a lot. They are being valued for their earnings which according to bs is pretty ***** secure. As long as there is more growth without balance sheet degradation. This stock is bomb. But I don’t think that the growth is enough. They’ve done a lot of share buybacks and dividends. Literally like 10b to 15b a year. So they are big on ****ing up their balance sheet and rewarding their investors. Anyways despite this they have grown like a beast. Anyways I don’t like the airline industry, Im good with defense. But overall I wouldn’t buy the stock cuz their entire operation is financed by debt! 

Boeing is an A rated firm with 0.3x Net debt to EBITDA, that’s like nothing.  Total debt is ~1.5x free cash flow. I mean, the rest was semi-coherent, but these guys are not remotely levered.  And somewhere around a third of their revenues are defense.

#FreeCVM #FreeTurd #2007-2017

im talking from a net worth or shareholder equity standpoint.

they have 120b in assets and roughly the same amount in liabilities. they literally have a shareholder equity of 0 yet have a market cap of 200b. that valuation is mostly due to their net income of 10b per year or their fcf of 13b. they then return all of that to shareholder via buybacks and divs. hence why they have a 0 net worth.

in all fairness they bought back 55b in shares and prolly 20b in dividends since inception. had they retained it, theyd have a 75b net worth and they wouldnt look as bad with a p/b of 2.6, but taht is not the case. right now if we gave them 1 year of income, they’d have a price to book of 20x. and if ever their revenues or earnings fall, there is no baseline support in the balance sheet, 

the way i see it there is 2  ways id buy their shares. they need to increae earnings to 25b to justify their current price and financial position. or the sahre price needs to fall by half. anyways it pretty amazing how this co went from 1b in net income in 2009 to possibly 13b in 2019.

I love my cheese. I got to have my cheddar.

Nerdy, no way.  Look, they are basically a massive and efficient supply chain, but realize they have a diversified order book (including the DoD work) and they hold significant customer deposits, everything they build is pre-sold under contract and their main programs have like a six year backlog.  With that in mind, their balance sheet is $87B current assets against $82B current liabilities on ~$100B revenue.  Of the current assets, $60B are work in process inventory (ie, planes being built) and of the current liabilities, $51B are deferred revenue (the deposits, etc).  These things are offsetting.  You’re completely glazing over the business model, so both of those things should rise and fall together.  IE, if customers, default on the backlogs, the deferred revenue liability is erased (Boeing keeps it) and if they’re not, then planes are getting delivered and there’s no problem.  These contracts are very strong.  So when you strip out the inventory and offsetting near term liabilities you’re left with something like a $30B asset company that is ramping towards consensus FCF of $18B in the next few years.  They also have significant recurring after market activity and are consolidating in industry players.  Again, I’m not necessarily a bull here, but I don’t think the short case is very clear cut at all.

#FreeCVM #FreeTurd #2007-2017

lol. i understand and agree wit heverything you said. but what i said is also just as true sure assets and liabiltiies shoudl rise together. but assets should always rise faster for me to like a company. anyways that would have been the case, if they stopped giving their money away back to past shareholders. 

lastly i am not saying i am a short.  why would i short a company that keeps making more money every year. in fact, they maybe should have killed the dividend and bought back more ashres as their income rose a lot. if their income will prolly rise a lot more than they should continue buying back stock adn cut the dividend. but honestly, i dont think that its the case, and i would feel more comortable with them if they had more assets in the bank,  given their balance sheet, i just wouldnt be comfortable in buying their **** right now, awesome business though.

I love my cheese. I got to have my cheddar.

Black Swan wrote:

Nerdy, no way.  Look, they are basically a massive and efficient supply chain, but realize they have a diversified order book (including the DoD work) and they hold significant customer deposits, everything they build is pre-sold under contract and their main programs have like a six year backlog.  With that in mind, their balance sheet is $87B current assets against $82B current liabilities on ~$100B revenue.  Of the current assets, $60B are work in process inventory (ie, planes being built) and of the current liabilities, $51B are deferred revenue (the deposits, etc).  These things are offsetting.  You’re completely glazing over the business model, so both of those things should rise and fall together.  IE, if customers, default on the backlogs, the deferred revenue liability is erased (Boeing keeps it) and if they’re not, then planes are getting delivered and there’s no problem.  These contracts are very strong.  So when you strip out the inventory and offsetting near term liabilities you’re left with something like a $30B asset company that is ramping towards consensus FCF of $18B in the next few years.  They also have significant recurring after market activity and are consolidating in industry players.  Again, I’m not necessarily a bull here, but I don’t think the short case is very clear cut at all.

Is there any potential for the company to have to payout massive settlements if found guilty of gross negligence from either of the criminal investigations though? I’m no contract lawyer; but, I’d bet that the airlines could get out of those purchase orders since the products being delivered are not what was promised. And if they decided to do so, I think that could have a tangible effect on earnings which would definitely play out in share price, as well as any settlements they could potentially owe (I don’t think insurance would step in to cover costs of a plane crash when Boeing created a bad product and delivered it poorly with no training to pilots).

I know you’re the expert here too, and I’m curious why you think a US pilot would have landed those planes safely??

¯\_(ツ)_/¯ It be like that sometimes.

CEO10K-DAY wrote:

Black Swan wrote:

Nerdy, no way.  Look, they are basically a massive and efficient supply chain, but realize they have a diversified order book (including the DoD work) and they hold significant customer deposits, everything they build is pre-sold under contract and their main programs have like a six year backlog.  With that in mind, their balance sheet is $87B current assets against $82B current liabilities on ~$100B revenue.  Of the current assets, $60B are work in process inventory (ie, planes being built) and of the current liabilities, $51B are deferred revenue (the deposits, etc).  These things are offsetting.  You’re completely glazing over the business model, so both of those things should rise and fall together.  IE, if customers, default on the backlogs, the deferred revenue liability is erased (Boeing keeps it) and if they’re not, then planes are getting delivered and there’s no problem.  These contracts are very strong.  So when you strip out the inventory and offsetting near term liabilities you’re left with something like a $30B asset company that is ramping towards consensus FCF of $18B in the next few years.  They also have significant recurring after market activity and are consolidating in industry players.  Again, I’m not necessarily a bull here, but I don’t think the short case is very clear cut at all.

Is there any potential for the company to have to payout massive settlements if found guilty of gross negligence from either of the criminal investigations though? I’m no contract lawyer; but, I’d bet that the airlines could get out of those purchase orders since the products being delivered are not what was promised. And if they decided to do so, I think that could have a tangible effect on earnings which would definitely play out in share price, as well as any settlements they could potentially owe (I don’t think insurance would step in to cover costs of a plane crash when Boeing created a bad product and delivered it poorly with no training to pilots).

I know you’re the expert here too, and I’m curious why you think a US pilot would have landed those planes safely??

So basically there’s a lot of hysteria that’s looking for a blame narrative but not really that accurate.  This isn’t a criticism thrown at you, it’s actually the media coverage of this.  My brother was an airline pilot up until a few years ago and I’ve talked to a few other pilots about this (plus its my coverage).  There won’t be massive settlements or gross negligence and you have to frame all of this in relation to the scale of the company which throws of $15B in FCF a year with 0.3x net debt to EBITDA.  For starters, these crashes occurred Indonesia and Ethiopia, those legal systems are not supporting $50M per person claims (which would only equate to one year of FCF) and frankly this is not Boeing’s fault to the degree people are spinning this.  I’ll get to the details on the actual background, but even if you wanted to get out of an order, there are ~6 year backlogs at Airbus (end of the line!) and with global passenger traffic growing around 6% a year now and for the foreseeable future, these airlines need planes.  This is an excellent overall aircraft with single flaw that is being fixed.  Beyond that those contracts are very tight and with an FAA approved fix being rolled out, it won’t be enough to break the contract.

This paragraph is the backstory (you can skip this if you don’t care).  So the big picture is the plane was built fine structurally.  The 737 MAX and Airbus’s 320 NEO are the two leaders of the new generation of narrow body aircraft (150-250 passengers in most configurations).  These are the workhorses of most fleets and the new options have new engines that combined with a few other updates to the frame provide 15-20% fuel savings which is huge for airlines with fuel being about a quarter of costs and planes having a 20 year life, it has the side benefit of allowing longer routes as well, like better transatlantic reach.  So their are two competing engines in the new generation and both are much wider at the inlet where the fan blades are, to compensate for this Boeing moved the engine forward a bit on the wing to provide better ground clearance.  In the process this creates a tendency for the aircraft to want to climb under certain circumstances.  This isn’t a big deal, different airframes have different behaviors and modifications are made to counter them.  So if a plane climbs unchecked too aggressively, it can stall, which is basically the worst thing that happens to most large aircraft, it looses lift and falls like a stone.  The counter to avoid this is as lift begins to fail, you need to immediately initiate a dive to regain airspeed. 

(Back on topic)  So Boeing built this MCAS system to sense an impending stall and force the plane into a dive with the hindsight mistake of the software relying on one sensor rather than the agreement of two.  It’s a mistake, but not criminal negligence and many of the other claims around their certification are often anecdotal, motivated and simply reflect the current regulatory environment.  It may need correction, but doesn’t constitute criminal negligence.

The narrative the US pilots all give is that the MCAS override is very similar to a runaway stabilizer (little wing on the back) in which can fail on any aircraft sending planes into either a dive or stall.  US pilots tend to have much stricter enforcement of training, including simulator time and the location of the override switches is both well known to all pilots and in the same place on aircraft.  So with the flip of two switches the pilots could have over-riden the system and continued their flight.  This is particularly true after the first crash when new bulletins and highlights to training were sent out.

For the Lionair crash its also notable that the sensor had documented issues on the previous flight and nearly caused the crash then.  But a third pilot for the airline, riding along in a spare seat, recognized what was happening and told the two pilots flying the aircraft what the response (which is in the training) was and they overrode it without issue.  This demonstrates A) that this is not an issue for a properly trained pilot and B) that there was an issue with pilot training.  In addition to this, the aircraft was immediately put back into service without having had the faulty sensor replaced (which is on the airline and should not have happened) and within minutes the plane crashed.  Ultimately, training falls on the responsibility of the airlines themselves (not Boeing) and they did provide the proper materials for training although it may have been poorly enforced by the airlines overseas.

Based on the study into the Ethiopian crash there is a theory that the loads on the stabilizers were too much for the pilots to counteract manually.  This is because they were pulling back heavily on the controls to climb while the stabilizer was still set to dive and this created too much force on the screw.  Older manuals outlined a procedure of letting go of the controls to allow a gentle dive and release the force while turning the wheel to adjust the stabilizers.  If this is the case, then it would in the case of the Ethiopian crash represent a complex failure (which is now being addressed/solved), one a US pilot would have known to resolve.  Regardless, the situation described, while terrible, is not gross negligence on Boeing’s part and won’t be a continuing portion of the narrative going forward, particularly given 1) the fix 2) the industry structure and backlogs and 3) the need for the aircraft

#FreeCVM #FreeTurd #2007-2017

i’d pair trade ERJ/BA day.

i don’t think 737 is going to be all that material for BA anyway. i’d more concerned about recession’s affects or affect’s of a change to Dem government. if either of these two things looked imminent, i surely wouldn’t want to own BA.