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Goldman Drops Boeing From Conviction Buy List

Tyler Durden's picture




 

Goldman's "conviction buy" list claims its latest crashing (not literally) and burning (literally) casualty.

What happened

We are removing Boeing from the Conviction List. It remains Buy rated. There is no change to our very bullish Aerospace sector thesis. However, our sector view is largely driven by the unique cyclical and secular dynamics of the legacy business, but it now appears the new product cycle of the 787 program has renewed risk of being  incrementally problematic before delivering the earnings and sentiment catalyst that we still believe will eventually be  realized. Since we added it to the Conviction Buy List on 5/10/10, BA is down 2.5% vs. the S&P 500 up 4.6%. Over the past 12 months it is up 34.9%, vs. the S&P 500 up 11.0%.

Current view

The 787 program has experienced multiple potential new issues in a short period of time since its last official delay, driving weakness in the shares. News on Rolls engines remains concerning, and reports from airlines imply another delay is possible or that at a minimum the ramp will be slower. While the cause of yesterday’s fire remains unknown, the event suggests the possibility the program may face a new issue of overheating given many more electronic components compared to prior generation aircraft. We also have some concern that BA’s initial 2011 guidance provided in January may disappoint, because historically the company has provided very conservative initial guidance. As a result, we believe BA shares may tread water in the near-term as more light is shed on these issues.

However, our very positive medium-to-long term view of the Aerospace sector and of Boeing remains intact. We continue to: (1) favor the emerging market growth tailwind the sector enjoys, (2) believe the cycle has turned and traffic and orders can surprise to the upside, and (3) believe the market under-appreciates the extent to which Boeing and Airbus still need to deliver on the last cycle’s massive order backlog. Precision Castparts (PCP) remains a top pick and on the Conviction Buy List in this context. Our 12-month, $88 price target is derived from target 2012E P/E. Risks include 787 challenges, current program ramp-up, and Defense spending.

 

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Wed, 11/10/2010 - 15:02 | 717150 goldmiddelfinger
goldmiddelfinger's picture

Goldman Drops : and it went: Boeing, Boeing

Wed, 11/10/2010 - 15:08 | 717161 Cognitive Dissonance
Cognitive Dissonance's picture

A Boeing 787 jet on a test flight over Texas made an emergency landing Tuesday after smoke was detected in the main cabin, the latest setback in development of the new plane.

 

http://www.cbc.ca/world/story/2010/11/09/boeing-787-test-flight-emergency-landing.html

Do you think Goldman has finally given up on the great Boeing plastic plane adventure?

Wed, 11/10/2010 - 15:37 | 717334 kaiserhoff
kaiserhoff's picture

What do you have against plastic?  Burt Rutan has made a career out of sawed off wing, plastic crap that only he can fly and only a mother could love.  Does it scale up?  In a word, NO.

Wed, 11/10/2010 - 15:45 | 717360 Cognitive Dissonance
Cognitive Dissonance's picture

I've been an aviation buff all my life. I was amazed when Boeing decided to go directly from composite rudder and wing tips to full plastic fuselage (huge barrels, not pieces placed on ribs like Airbus decided was the way to go with the A350) and wings. Bold move that either is a home run or bleeds the company to death. Looks like bleeding is the outcome.

I suspect this becomes a national security issue and thus the reason they will be handed the Air Force Tanker project, to keep them afloat. There 747-8 line is in real trouble and now they are reaching the decision point for either re-engining the 737 and kicking that can down the road to 2024 or building a new 737 class in plastic for a 2017-2019 roll out.

Wed, 11/10/2010 - 16:00 | 717420 kaiserhoff
kaiserhoff's picture

Yes.  This is the same problem that will kill the large wind farms.  The composite crap looks great when it is new, but fiberglass, glue, plastic and such just don't hold up in extreme weather, and violent wind and temperature configurations.

I always thought the old MD 80 was a damn near perfect airliner.  Far better than anything the pregnant guppy crowd could dream of.  It got killed by engine failures even though MD made no engines.  Such is life.

Wed, 11/10/2010 - 15:04 | 717162 unky
unky's picture

The Fed just released the new schedule: http://www.newyorkfed.org/markets/tot_operation_schedule.html

Wed, 11/10/2010 - 15:06 | 717169 Cognitive Dissonance
Cognitive Dissonance's picture

Interesting. They actually list the expected purchase size. This is the Fed equivalent of waving the red cape in front of the bull.

"Come on big boy, I know you can do it."

Wed, 11/10/2010 - 15:07 | 717180 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Good one.  This is a bull fight.

Wed, 11/10/2010 - 15:15 | 717220 Cognitive Dissonance
Cognitive Dissonance's picture

Look at the schedule. There will be a POMO EVERY DAY NEXT WEEK plus Monday and Tuesday of the week following.

Seven fracking business days in a row. Eight if you count this Friday.

I smell desperation in the area. Is that DC burning?

Wed, 11/10/2010 - 15:34 | 717322 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I think that burning smell is Timmah's underpants.  The real underwear bomber!

"We want a strong dollar."  [faaart] [sqeeak]  "Uh, I think that was a wet one."

Wed, 11/10/2010 - 15:06 | 717173 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Get your popcorn heeeeeeere!

Wed, 11/10/2010 - 15:06 | 717176 tmosley
tmosley's picture

Boeing is literally burning?  Normally I wouldn't ask, but since you clarified between literal and not literal, it makes me think that you are referring to a non-metaphorical fire that I haven't heard about.

Wed, 11/10/2010 - 15:17 | 717243 Red Neck Repugnicant
Red Neck Repugnicant's picture

@ tmosley

You should spend more time reading the news and less time on the unicycle spinning plates on your head.

http://www.nytimes.com/2010/11/11/business/11boeing.html?src=busln

Perhaps those American union workers would build better airplanes (fire-proof, at least) if they weren't so preoccupied with the flooding the world with dollars.  

Wed, 11/10/2010 - 15:25 | 717288 tmosley
tmosley's picture

If I spent any more time reading the news, I'd be out of a job.  This financial crap has me glued to the screen much more than I should be.

I did hear about that on NPR this morning, now that I think about it.

Why do you obfuscate everything you say?  Why don't you just come out and speak your mind instead of trying to paint people you don't like in the way you think they are?  They aren't, much more often than they are.  You're Steven Colbert gone to the CATO institute, trying to pretend that everyone in the room is a conservative Republican/neocon, when they are mostly libertarians or centrists, with a very few conservatives thrown in.  But you just keep at it, even though it makes no sense.

Wed, 11/10/2010 - 15:11 | 717212 The Rogue Trader
The Rogue Trader's picture

Yeah....wouldn't have anything to do with that "Dreamliner" SMOKING into Laredo yesterday? Noooo way!  As a former pilot, our motto was "if it's not Boeing I ain't goin' "....and truly my pilot friends and I were devoted to Boeing "metal" as opposed to Airbus composites.....however the 787 is a composite aircraft and you will not catch me or my children on one....old Boeing metal for me....how's Quantas doing with their Airbus 380's?

Wed, 11/10/2010 - 15:27 | 717294 Cognitive Dissonance
Cognitive Dissonance's picture

how's Quantas doing with their Airbus 380's?

I follow the industry pretty closely and the scuttle butt is that Quantas is experiencing higher than expected maintenance costs and higher fuel burn than promised. And of course they have the engine issue they are dealing with. Engines exploding in mid air is NOT good.

This is the first time both Airbus (with the A380) and Boeing (with the 787) have officially marked an entire line of planes in the red, meaning that the line is expected to remain in the red for at least 5 years.

Airbus doubled the number of units it must sell before it hits break-even, out to 10 years of production. Boeing has similar problems with the 787 unless they can hit 10 per month by 2013, an unlikely event. It now appears Boeing won't make money on the line until 2017 at this rate. They had to write off the entire fleet of 6 test planes because they have been so heavily modified that they could never deliver the fuel burn promissed. Normally Boeing can sell the last few test planes as used when done testing.

And let's not even get into the 747-8.

Opps.

Wed, 11/10/2010 - 15:32 | 717312 Ripped Chunk
Ripped Chunk's picture

One emergency landing of a test flight and you are out on your ass..........................just like that.

 

How is Rolls Royce doing ??

Wed, 11/10/2010 - 15:45 | 717361 kaiserhoff
kaiserhoff's picture

BOEING DROPS GOLDMAN FROM 40,000 FEET

Not yet, but I can dream.

Wed, 11/10/2010 - 15:49 | 717374 Monday1929
Monday1929's picture

I've been hoping to see "Goldman" and "conviction" in a headline.

Wed, 11/10/2010 - 15:54 | 717394 Careless Whisper
Careless Whisper's picture

the flash crash was on 5/6 and BA drops about 10 points intra-day. wonder if any lucky traders at goldie bought some BA on the cheap before the upgrade. jus wonderin.

isn't gulfstream building the new must have jet? like a g6...like a g6...

http://www.youtube.com/watch?v=GvgJEznqtms

 

 

Wed, 11/10/2010 - 16:31 | 717520 Rogerwilco
Rogerwilco's picture

Boeing is a criminal enterprise that stole money from my business, and dared me to do anything about it. The day they go under will be a day of celebration for me.

Wed, 11/10/2010 - 19:43 | 718167 bugs_
bugs_'s picture

don't say drop and boeing in the same sentence!

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