Sometimes a broker research note can be more powerful than news, even if the call is on valuations and mentioning what could be an inevitable slow-down in new orders after what has been a robust 3-year expansionary phase. Boeing (BA) was downgraded by Wachovia to a Market Perform rating from an Outperform rating. Typically such research notes would be said to contain little information of value, but this report could mark the end of a trend and could put the other analysts on watch for more downgrades (this is actually the second such call from key research reports). You can probably expect several firms to try defending the shares today, but our ‘at-risk’ vantage is on a longer-term view in this case. StarMine doesn’t even have Wachovia listed as one of the top analysts in the stock.
The fact that General Electric has sent it a $5.3 Billion order for 39 planes has hardly been noticed, which means that investors are still acting more cautious than brave. It would be prudent to think that street may want to see an adjustment to high-multiples before making any changes to forward valuations.
BA shares are down 3.25% at $85.75, still toward the higher-end of the $65.90 to $92.05 trading band over the last 52-weeks. Keep in mind that the stock ended September 2001 at $30.57 on a dividend adjusted basis, so the DJIA component has run roughly 200% over the last business cycle from trough to peak. Analysts still have a positive bias to the stock, so you could easily see more downgrades with the stock so much higher.
Jon C. Ogg
January 22, 2007
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