Boeing’s ‘Fair Trade’ Fight Could Help Stock Climb

Matt Thalman

The Boeing Company (NYSE:BA) reported first-quarter 2017 earnings that beat estimates but fell short on sales, followed soon thereafter by it leaders asking the Commerce Department to investigate unfair competition.

The company’s request follows President Trump’s plan to renegotiate the North American Free Trade Agreement with the leaders of Mexico and Canada. To that end, Boeing is claiming that Canada’s Bombardier Inc. (Toronto:BBD-B.TO) is dumping planes at an “absurdly low” price of just $19.5 million, which the U.S.-based manufacturer suspects could be well below its rival’s costs.

At such a low price point, Boeing cannot compete with its comparable plane, the Boeing 737-700 model, priced at roughly $83.4 million. Bombardier poses a genuine threat to Boeing in the 100-1xx passenger commercial aircraft segment and the Canadian company swooped in to win a contract with Delta Airlines (NYSE: DAL) in 2016 for 75 planes worth $5.6 billion.

But Boeing’s concern about potentially unfair competition goes beyond Bombardier, since the U.S. company took a shot at its European rival AIRBUS (XETRA:AIR.DE) by claiming its competitor across the Atlantic Ocean has been unfairly selling its plans below cost.  Boeing currently has a complaint before the World Trade Organization (WTO).

The Commerce Department responded to the complaints by committing to take “a thorough review” of the situation. If either Bombardier or Airbus, if not both, are found to be dumping planes on the market, Boeing could see a big lift if the WTO rules in its favor. The company could win contracts back that previously had been awarded to its competition.

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In its first-quarter 2017 results, Boeing reported revenue of $20.98 billion, falling below the $21.44 billion consensus Wall Street estimate, but the company managed to beat earnings per share (EPS) forecasts of $1.91 by posting EPS of $2.01.

One issue that Boeing continues to face, despite what the competition is doing, is slow production times. The company has a massive backlog of plane orders. Even if it beat out Airbus or Bombardier for new contract awards, the U.S. manufacturer likely would not be able to fill those orders for a few years.

From an investing standpoint, this can be both a good and a bad thing. It is good in the sense that future revenue and earnings become a little more predictable. However, a drawback is that the company’s growth aircraft order growth prospects also are limited. Furthermore, having a long production turn-around time typically means shipments will come in behind schedule, not ahead of schedule.

Regardless, based on what we have heard and seen from President Trump during his time in office, it is not hard to imagine trade deals becoming more favorable for companies who build products within the U.S. borders. Since that includes Boeing and the company is asking for a review of the competition, investors may want to consider taking a position in Boeing, before the stock moves much higher, especially if the WTO sides with the company.


Matt Thalman

 

Matt Thalman has been writing since 2011, shortly after gaining his MBA, but his love for the markets began in undergrad when he first learned about the awesome power of compound interest. Thalman mainly focuses on consumer-facing stocks and general investing topics, but will also cover other areas of the markets if he believes there is something important investors need to know. Follow him on Twitter @mthalman5513.

At the time of this writing, Matt Thalman owned shares of Verizon, Amazon.com, Netflix, and Tesla. 

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