The stock of the Boeing Company (NYSE: BA) closed at $15.. on Wednesday. This translates to a gain of about 15% since November 1, 2016. The company reported fiscal 2016 third-quarter non-GAAP earnings of $2.194 billion or $3.51 per share on revenues of $23.898 billion. The revenues and net income were lower on a y-o-y basis. However, the earnings per share surpassed analysts’ estimates by a margin of about $1 per share. Furthermore, Boeing raised its revenue and earnings estimates for fiscal 2016. This triggered a rally in the stock. However, we forecast a short-term downtrend in the stock due to the reasons provided below.
Both Boeing and Airbus released their deliveries, order, and backlog for 2016. The report indicates that Boeing lags behind Airbus in orders and backlog. While Airbus has net orders of 731, Boeing has 688. Similarly, the backlog of Boeing is only 5,715 whereas it is 6,874 for Airbus. Notably, Airbus received an order for 98 aircraft from Iran in December 2016.
At the Airline Economics Growth Frontier conference in Dublin, Air Lease Corp. (ALC) President and CEO John Plueger stated that Boeing’s response to competition in the single-aisle market may have been a bit late.
Analysts at RBC (Royal Bank of Canada) have also voiced their concern about the issues faced by the aircraft manufacturer. In a research report sent to clients, McConnell, an analyst at RBC, has mentioned that the protectionist policies of Trump and the commercial margin pressure could negatively impact the top line and bottom line of the company.
While the Dow Jones Industrial Average has gained 10% in the past three months, the Boeing stock has gained about 20%. So, considering the above facts, RBC has initiated the coverage on the stock of Boeing with an “underperform” rating.
Similarly, analysts at Vetr have downgraded the stock from a “hold” rating to a “sell” rating, with a target price of $150 per share. The Zacks investment research firm has also cut the rating of the stock to “sell”, from the prior “hold” rating. Thus, fundamentally, we can anticipate the stock to remain bearish in the short-term.
The stock is facing resistance at 158.90. After hitting a reading of 100, the stochastic oscillator has started to descend. It reflects a loss of momentum in the stock of Boeing. So, a trader can expect the share price to decline further in the days ahead.
To capitalize on the stock’s forecasted decline, a trader can purchase a low or below contract. The contract (a put option equivalent) should be bought when the stock trades above $158 in the equity market. For increasing the probability of success, the trader should also look for an expiry date between Jan 26th and Jan 28th.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
