Wednesday, April 20, 2016

Merrill Lynch's Pit Party

Holly Batman, it's a cow, Robin. Merrill Lynch proclaimed Boeing's $29 billion money pit, a pit too deep for its 787 program. The analyst have decided a little money here, and a little money there has become real money. Its analysis of a pit too deep will be impossible for Boeing to climb out of during the current block of 1300 787's going to market. Hence, it gives a downgrade. All this means is Boeing is at risk for achieving a goal of profitability within its 787 program. The limited scope view has consumed many bullet points leading too few remaining bullet points to do otherwise but downgrade Boeing's 787 program results. Thus making Boeing stock a "Bear" risk predicated on things not unforeseen, but only on things foreseen.

Things Foreseen comes from The 787 Money Pit:

·      Not enough sales for overcoming the 787 Money Pit remain on the book. 
·      The 1300 787's is a profit no go.
·      Boeing expansion programs for other aircraft types does tie Boeing's financial hands.
·      Boeing sales for the 787 program has permanently flattened. 
·      Airbus has absorbed the remaining wide body market before Boeing achieved its 787 sales goals.

Things unforeseen may yet to occur:

·      The market's natural expansion expands Boeing's 787 sales portfolio by 500-787's in ten years.
·      Boeing will manufacture its way out of the 787 Money Pit by upping monthly production.
·      There will be no show stopping glitches on its succession of programs (737 Max, 777X).
·      The A350 is way overrated and it loses more orders.
·      Boeing pricing is allowed to increase over the A350 order slowdown. 

The truth is somewhere in between the foreseen and unforeseen. A stock market strategy may exist for first waiting and then seeing when to sell from one’s own market position, and then buy again when the light at the end of the money pit is turned on. Currently Merrill Lynch sees the lights have been turned off in the 787 Money pit. 

As always it becomes a risk and an investor should use best information at the time of any financial decision. However, there are both positive and negative points for Boeing stock related to the 787 program at this time. The Merrill Lynch rating states an obvious stock condition while using its best information for its conclusions of the Boeing stock valuation. It does not include a rating based on unforeseen conditions as would a Winging It assumption is often made.