Gone are the days when the only question that Boeing was asking itself was: “Should we make big planes or small ones?” And that bet has not proved yet to be a success, but nor a failure.
The U.S. plane manufacturer is not faring very bad, after all. Its share price has dropped from a maximum of $88.29/share (the maximum for the last year) to roughly $33 today. It is a big declien, but not as big as the one for other manufacturers. For example, the heavy duty equipment manufacturer Caterpillar shed at the beginning of this year 20k jobs and saw its sale price go down to $26.51 (from $85.96 maximum in the last year), whereas the General Electric shares tumbled down to $8.87 (from a maximum of $38.52 in the last year.
What are the reasons for Boeing’s resilience? First of all, it has long term standing orders, with large contracts behind, which span the next 3-5 years. In other words, should you know the Boeing orders for the next 3 years, you can approximate its share price quite accurately.
Secondly, Boeing is not yet hit by the recession, since now it is delivering only the last years orders to the airlines. The question is – how much were its latest orders reduced in the last 6 months-one year due to the global financial crisis? Because, based on those orders, the share price of Boeing will react in the incoming future, but with a delay.
We at doitinvest.com could extrapolate a little bit our analysis and mention that Boeing is not yet really suffering from recession – only after delivering the current orders they will start to feel it. It is true that they are better positioned than Airbus on a shringking airplane market, since their new 747 is of a smaller capacity and accomodates more efficiently less passengers. But in the current market environment, relying on this can be quite tricky, since the airlines are actually reducing their fleets (or maintaining them). This would mean less purchases for both Airbus and Boeing. And one can say that the new Obama administration is not as supportive to foreign wars as the previous ones, which in turn could reduce the demand for Boeing’s famous Apache hellicopters.
So our guess at doitinvest is that the Boeing share price has not yet reached the bottom. But history will tell us if this estimation was reallistic or not.