Actions of boeing (LICENSED IN LETTERS -9.38%) it traded down more than 8% on Monday, hitting lows not seen since the early days of the pandemic. Investors are increasingly pricing in a recession and putting their feet up in their belief that Boeing will not be a safe-haven stock if conditions worsen from here.
Historically, Boeing has been a poor investment during recessions. The company makes high-cost planes, and the customers who buy them, the airlines, tend to focus more on survival than expansion when demand dwindles.
On Monday, Wall Street was firmly in sell mode as investors continue to worry that the Federal Reserve’s efforts to control inflation will lead to a recession. Neither high inflation nor a recession is good news for airlines, as consumers and businesses tend to forgo expensive items like plane tickets if they need to tighten their belts.
For Boeing, this new headwind comes at an inopportune time. The company has been bouncing from one crisis to another since March 2019, when its 737 MAX was grounded after a pair of fatal crashes. In the quarters since then, Boeing has also battled a pandemic-induced slowdown in new plane sales, issues related to defending its business and renewed regulatory scrutiny of other Boeing business models, including the 787 Dreamliner.
Boeing’s total debt has grown more than 400% in the last five years, as the company borrowed heavily to avoid a liquidity crisis even as deliveries dwindled. It will take strong demand for its planes to pay off that debt.
Boeing shares could also be under pressure due to a Puget Sound Business Magazine report that warned that the company is running out of time to obtain expedited certification from the Federal Aviation Administration (FAA) for a new variant of the 737 MAX.
The FAA determined that a more advanced cockpit warning system could have helped prevent the two fatal MAX crashes in 2018 and 2019 that led to its grounding. It could make lawmakers less inclined to allow the new version of the MAX to be certified without an alert system overlay.
For the past five years, Boeing has been unable to escape the turbulence. The last thing you need is new macroeconomic problems that are beyond your control.
In theory, there’s a lot to like about Boeing. The company currently trades just above a price-to-sales ratio of 1, well below the multiple of other aerospace companies, including Lockheed Martin Y Raytheon Technologies. The company enjoys a global duopoly with Airbus that should boost commercial sales for decades to come. And while the outlook for the coming quarters is murky, it’s not as dire as it was in April 2020, the last time Boeing shares traded at these lows.
But given Boeing’s recent track record, few investors remain willing to give the company the benefit of the doubt at this point. Even at these lows, it takes a leap of faith to buy Boeing right now.