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Goldman Removes Boeing From "Conviction Buy" List

Tyler Durden's picture





 

For those curious how it is that Goldman just reported a stunning beat across the board, here is a hint: the firm had flaming paperweight extraordinaire maker Boeing (a firm which has now had at least one component in 4 Dreamliners spontaneously combust, and has lead to the grounding of the entire ANA and JAL fleets) on its Conviction Buy list. At least until today, when the stock is indicated to open some 5% lower. Which means as of moments ago, Goldman is done selling BA stock to its clients. With conviction.

From Goldman:

What happened

 

We remove Boeing from the Conviction List, while retaining our Buy rating. We lower our 12-month price target to $90 from $98. Last night an All Nippon Airways (ANA) flight on a 787 aircraft made an emergency landing. Multiple reports state this was due to an alert in the cockpit of an issue related to batteries in the aircraft. This follows the January 7 incident in which a Japan Airlines 787 experienced a fire while parked at the gate at Logan airport, which was also reportedly caused by the overheating of a lithium ion battery. BA is up 31% since we added to the CL on 8/8/11 vs. SPX up 32%. It is up 3% the past 12 months (SPX up 14%).

 

Current view

 

We remain bullish on the fundamentals of the Commercial Aerospace sector, we continue to favor the long-term earnings and cash flow growth driven by the 787 product cycle, we continue to expect significant shareholder-friendly capital deployment from BA, and we still believe valuation for the stock is attractive.

 

We also believe it is normal for new aircraft programs to experience challenges in the early part of entry in to service, including many historical new aircraft programs requiring multiple FAA-driven changes. And it remains possible that the recent 787 issues fall in to the “teething” category, as much information is still unknown.

 

But despite our view on all of these items, we also recognize that there have now been two incidents in a very short window pointing to potential issues related to one part – lithium ion batteries – and the concentration and possible overlap of cause within these events heightens the risk of a potentially more meaningful required change to the aircraft and therefore a possible delay in the pace of the production ramp. This would make near-term outperformance of shares more difficult to see.

 

Our estimates are unchanged (our model already assumes 10 787s per month is achieved in mid-2014). We lower our price target to $90 from $98 on a lower P/E (13.8X vs. 15.0X prior) given these increased risks. Other risks include the new aircraft order cycle and DoD spending priorities.

 


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Wed, 01/16/2013 - 09:22 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

You can always count on the boys from GS for a knee-jerk reaction.

Wed, 01/16/2013 - 09:33 | Link to Comment CPL
CPL's picture

Considering they wouldn't be caught dead in anything other than a Lear private jet to avoid the pesky airport friskings.

Wed, 01/16/2013 - 09:35 | Link to Comment economics9698
economics9698's picture

Someone needs to provide the hookers and coke for the clients.

Wed, 01/16/2013 - 10:35 | Link to Comment trav777
trav777's picture

A LiOn battery caught fire.  Nothing to do with the "787" in the abstract.  It was probably a Macbook or Chevy Volt parts or something

Wed, 01/16/2013 - 09:21 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Boeing, Boeing, GONE!

Ridiculous company, shitty products, old tech drenched in new materials.

What did they expect from the GM of Aerospace?

ori

Wed, 01/16/2013 - 09:39 | Link to Comment CPL
CPL's picture

The junking is obviously because people wish to fly unsafe, unqualified aircraft with a company caught red handed recycling broken parts with the airline industry as the parts broker.

 

We can all hope Boeing folds, but it won't, it'll get a bail out like the last 24 times it's been in trouble over 40 years.  God it's a shitty company. 

Wed, 01/16/2013 - 09:51 | Link to Comment GetZeeGold
GetZeeGold's picture

 

 

I don't worry flying on a Boeing....but getting on a Airbus scares the crap out of me. Stuff just falls off those things.....really important stuff.

Wed, 01/16/2013 - 10:36 | Link to Comment trav777
trav777's picture

you'd rather fly on a freakin airbus?  Is you crazy?

Wed, 01/16/2013 - 11:37 | Link to Comment CPL
CPL's picture

I wouldn't fly on any of them right now and been maintaining that practice for four years when the stats came out at a trade conference I was at.  Last day I considered flying, up until that point I was completely oblivious to the practice, I chose Computer engineering over aerospace because of the level of responsibility those guys have.  As an engineering practice it is a double edged sword.

 

One side, you get to create some awesome works of flying art.  Something that's been on the human mind as long as people could draw a picture of a bird on a wall.  It's truly an amazing technology sector.

On the other side, it's very energy and moving parts oriented.  If either of those two things are lacking people end up dead with a big mess to clean up.  It's pretty big weight to carry for a single sector, so that invites a lot of bureaucracy to not just over see but to start defining common practices.  <-- this seems to missing, shit your pants scary with old parts in the pool.

 

When we hear of a brand new plane rolling off an assembly line and recalled in under a year.  It now means things are so bad the over lookers are looking the other way (very bad)  AND nobody is casting new parts right now.  It's very expensive with just the energy requirements.  A new cast part has the potential for costing the same as the used plane that needs it now.  Half the fleet in the air is well past retirement to begin with.  Either some smart cookie figures out how to make plane parts cheaply or the entire industry is done for.  

#peakaerospace.  It really sucks as an idea, but I don't see how this is fixed any more.  The fact we've gone back to multi stage rockets for space programs should have been a screaming warning for everyone, versus the piggy back method that was being refined in the 80's.  The US space program in the 80's was doing more advanced things in space travel than any other time, and that's gone.  While the space program that gave a ton of great ideas for the future development of aerospace engineering, that's as far as it went.  NASA did great things once.  Now...borrow a friends ride to another guy's space station to work with a bunch of other guys testing yeast samples.  sigh...

There is another reason the drones are getting used btw.  Less moving parts, smaller, more efficient operationally (until Jevon takes care of that as usual).  The fact you can have high schoolers make them for you (even though the parts maker is in China...sigh).  They are the correct business engineering solution to a problem of counterfeit parts in large flying gas tanks over urban populations.  Like most, I would rather nothing was flying around watching me scratch my ass.  But if something is going to fall out of the air, I would rather it be an RC toy instead of five tonnes of hot engine and 1000's of litres of very combustible fuel.

 

sorry...one more ramble.  However if all this nonsense above wasn't happening.  We wouldn't be having a bunch of basement engineers creating some really amazing things with ultralights.  While the large carrier technology pretty much shit the bed in the 80's.  The basement guys were oblivious to the change in industry, therefore ignored for the past 30 years.  They have some of the coolest shit now because of that disconnect.  Modern jet fighters have more in common with an ultra light now than an F16.  The goal of the modern plane is more mile for your buck, keep your planes up longer than the other guy's.  Firepower counts for shit if your plane becomes a brick and stalls out...anycase, good Ted talk on aerospace, fun, failure and future.

http://www.ted.com/talks/regina_dugan_from_mach_20_glider_to_humming_bird_drone.html

Wed, 01/16/2013 - 13:12 | Link to Comment SokPOTUS
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When I first heard the term "International Space Station" I knew we were F'd.

Wed, 01/16/2013 - 10:41 | Link to Comment trav777
trav777's picture

just STFU until your country can produce a plane itself

Wed, 01/16/2013 - 09:21 | Link to Comment fonzannoon
fonzannoon's picture

where is the aapl carnage? Dickhead Bove got burned 75 points ago. Where are the overleveraged hedge funds etc. that are choking on it? No fireworks?

Wed, 01/16/2013 - 09:22 | Link to Comment TideFighter
TideFighter's picture

Overcharging Li+ batteries, not a difficult technical issue to solve. BTFD.

Wed, 01/16/2013 - 09:27 | Link to Comment Winston of Oceania
Winston of Oceania's picture

Windscreens have never failed before either...

Wed, 01/16/2013 - 09:25 | Link to Comment HD
HD's picture

It's okay. Goldman says S&P 1250 by 2012 year end - I'm gonna be rich by Christmas last year!!

Wed, 01/16/2013 - 09:25 | Link to Comment Inthemix96
Inthemix96's picture

More abject failure.

Will this stunning result turn around into more profits, and so hence, more bonuses for the GS twats?

Wouldnt suprise me in the fucking least.

Wed, 01/16/2013 - 09:30 | Link to Comment HD
HD's picture

Don't worry. BA will get some massive government contract for a fleet of domestic DHS spy drones to keep america safe from the OWS, fringe bloggers, Ron Paul supporters and other terrorists types.

Wed, 01/16/2013 - 09:39 | Link to Comment Inthemix96
Inthemix96's picture

HD,

Wouldnt suprise me if someone from the DHS is reading your comment and implements the programme carte blanche.

That is just how stupid we are dealing with here.  I wouldnt let these fuckers watch my TV, never mind anything important.  And any one scanning these pages from the DHS, fuck off you half-wits, go get a real job.

Wed, 01/16/2013 - 09:47 | Link to Comment HD
HD's picture

Fortunately for us - the ability to read is not a requirement for employment with DHS. One need only follow orders.

Now if you want a job at the SEC, that's different - you have to be able to read and write in order to google the best midget porn.

Wed, 01/16/2013 - 09:56 | Link to Comment Inthemix96
Inthemix96's picture

Now thats a fair comment HD,

Over here the minimum qualification you need to be in, politics, the judiciary, the Met, and top level government?

Any ideas ZHers???  The minimum before being accepted, is you need to have an unhealthy attraction to children.  Allegedly of course.

 

Wed, 01/16/2013 - 09:44 | Link to Comment LongSoupLine
LongSoupLine's picture

Fuck you Goldman Sachs.

Wed, 01/16/2013 - 10:05 | Link to Comment jayman21
jayman21's picture

Never gets old

Wed, 01/16/2013 - 13:08 | Link to Comment SokPOTUS
SokPOTUS's picture

Always good for a cheap up arrow....

Wed, 01/16/2013 - 09:49 | Link to Comment Disenchanted
Disenchanted's picture

It would be a damned shame if a Dreamliner pancaked onto the top of 200 West St...

Wed, 01/16/2013 - 09:58 | Link to Comment entropy93
entropy93's picture

This battery thing seems like a stunning engineering mistake. Save a small amount of weight by replacing very safe AGM batteries with lithium. AGM can be float charged dirt simple charge controller and safety devices, a failure won't even spill acid. Lithium requires a complex charge controller, if it or the batteries fail you've got a white hot fire.

Even then lithium batteries rarely catastrophically fail, the dreamliner has had three battery failures in a week. Sounds like they have defective batteries or charge controllers. Not surprising when everything is out sourced.

It gets worse, this plane isn't made of metal, its made of plastic. Rather than a fire being contained, and damped down by metal, you've got it incased in plastic. Even if highly fire retardent you've got a big toxic fume issue. You may also have much worse failure modes than aluminum.

 

Wed, 01/16/2013 - 10:38 | Link to Comment trav777
trav777's picture

you seem to be unaware that aluminum burns, idiot.

The plane is CF, not plastic.  jfc

Wed, 01/16/2013 - 10:57 | Link to Comment azengrcat
azengrcat's picture

Aint lived unless you seen a titanium fire.

Wed, 01/16/2013 - 10:12 | Link to Comment Uncle Zuzu
Uncle Zuzu's picture

Sooooo.. the recommendation is to buy it, but make sure you do so without conviction.  Do it nonchalantly.

Wed, 01/16/2013 - 10:19 | Link to Comment q99x2
q99x2's picture

Are GS clients government targets and/or targeted governments.

Wed, 01/16/2013 - 10:21 | Link to Comment otto skorzeny
otto skorzeny's picture

boeing should stick with being DOD welfare queens-nothing much is expected and they can rape the taxpayer for billions without having to answer to the pesky public.

Wed, 01/16/2013 - 10:25 | Link to Comment gigeze787
gigeze787's picture

WHAT HAPPENED?

Boeing placed controlling labor costs ahead of producing its normal high quality product (like the B757, B767, and especially B747).

Boeing outsourced thousands of union aircraft machinists in Seattle with a new non-union plant in South Carolina and by using non-US production companies in Japan, Italy, etc.

The result was a Lego assembly concept that made perfect financial sense to bean-counters who know nothing about building airplanes.

Once again, the money "experts" screwed up a once great US company.

Airbus is having wet dreams over Boeing's repeated, multi-year 787 failures, and hoping these failures create a market for its new A350 jet.

You get what you pay for.

 

Wed, 01/16/2013 - 10:40 | Link to Comment trav777
trav777's picture

the 787 and the 350 are not in the same market segment.  The 350 is aimed at the 777's segment, while the 787 slots as a 767 replacement and competitor to the 330.

Please stfu about commercial aviation if you don't know anything.

The 87's order book is deeper than any plane in history this early in the product cycle.  The engineering knowhow to construct CF planes will serve BA far into the future.

Wed, 01/16/2013 - 11:15 | Link to Comment gigeze787
gigeze787's picture

trav777 -- why don't you drop your arrogant stupidity and try something called Google? Just type in "787 A350" and you might learn something. For instance:

"The A350 was designed to compete with two categories of Boeing aircraft - the brand-new carbon-composite 787 Dreamliner and the larger 777, the world's best-selling wide-body jet."

See: http://www.reuters.com/article/2012/11/01/us-airbus-united-idUSBRE8A01BV20121101

Further, Boeing has already lost some 787s orders from Qantas and Singapore, so "order books" do not equate to actual deliveries, as reported by journals like Air Transport World:

See: http://blogs.atwonline.com/2012/10/26/singapore-airlines-implicit-judgment-on-787-a350/

and

"Qantas’s pullback on the 787-9 reduced Chicago-based Boeing’s backlog for the larger derivative of the composite- plastic plane by about 10 percent. It also underscores a travel slowdown that has caused carriers including Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. to cut growth plans. "

http://www.bloomberg.com/news/2012-08-22/qantas-airways-has-first-annual-loss-as-fuel-costs-rise.html

Have a nice flight, idiot.

Wed, 01/16/2013 - 11:09 | Link to Comment lakecity55
lakecity55's picture

SC plant is not the problem; it's outsourcing, a lot of it for inferior ChiCom products, IMO.

Wed, 01/16/2013 - 11:01 | Link to Comment Falconsixone
Falconsixone's picture

It's not their money, why would they care? 

Wed, 01/16/2013 - 11:22 | Link to Comment Lumberjack
Lumberjack's picture

Who made the batteries....A-123 or Xtreme power?

Wed, 01/16/2013 - 13:13 | Link to Comment SokPOTUS
SokPOTUS's picture

Solyndra...

Wed, 01/16/2013 - 13:09 | Link to Comment SokPOTUS
SokPOTUS's picture

It's time to play the music; It's time to light the lights,

 It's time to meet the Muppets on the Muppet Show tonight.

 It's time to put on makeup; It's time to dress up right,

 It's time to raise the curtain on the Muppet Show tonight.

Why do we always come here; I guess we'll never know,

It's like a kind of torture To have to watch the show.

And now let's get things started; Why don't you get things started - It's time to get things started...

On the most sensational inspirational celebrational Muppetational - This is what we call the Muppet Show!

Wed, 01/16/2013 - 12:05 | Link to Comment robnume
robnume's picture

Speaking of convictions, when will Golem Sachs and/or Boeing ever be indicted for war crimes, sedition, treason or RICO? Buy stock from dealers making WMD? FOAD, Golem Sachs and Boeing. Oh, and, GET THE FUCK OFF OF MY PLANET!!!!

Wed, 01/16/2013 - 14:08 | Link to Comment Volaille de Bresse
Volaille de Bresse's picture

"you'd rather fly on a freakin airbus?  Is you crazy?"

 

Funny cos on this side of the Atlantic Airbus is considered the nec plus ultra of airplanes! 

Anyway this silly US/Europe war will look rather feeble in 2030 when... we all fly Chinese (cough cough). 

Wed, 01/16/2013 - 14:42 | Link to Comment Venerability
Venerability's picture

But there was actually - the first honest US story for quite some time on this topic - a headline piece at Boomie's yesterday pondering why in the world Embraer should be given an 86 percent - Yes, 86 percent! - valuation premium over Bombardier.

Bomber should be soaring on negative news from all of its major competitors. Of course, that would mean allowing Those Dread Canadians to gain an advantage over the US, which cannot happen under any circumstances, as we all know the real threat in the world is not Iran or North Korea or Syria or Mali - it's Canada! 

Wed, 01/16/2013 - 16:17 | Link to Comment SmittyinLA
SmittyinLA's picture

"Boeing, the new Microsoft"

Wed, 01/16/2013 - 19:21 | Link to Comment gigeze787
gigeze787's picture

Attn to those who thought GS was overreacting and the idiotic commercial aviation "expert" who told everyone to "stfu":

FAA Grounds All Boeing 787 Planes Until Proven Safe   Text Size    

Published: Wednesday, 16 Jan 2013 | 6:13 PM ET

http://www.cnbc.com/id/100385850

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