VALUE: After Hours (S08 E12): Boeing Stock: Turnaround Opportunity or Value Trap?

During their recent episode, Taylor, Carlisle, and Charles Lemonides discussed Boeing Stock: Turnaround Opportunity or Value Trap?. Here’s an excerpt from the episode:

[Charles] We owned Boeing a long, long time ago and did very well on the investment. And then it got to be a price we thought was fair and we exited. I don’t remember when that was, but it was not in the past two or three years.

It was five or seven years ago. It was a while ago. And we were hesitant to revisit the name even though it became cheap for a long time because the company just seemed to be kicking the ball in the wrong direction at every time.

And you couldn’t not blame that on management. There were too many times in a row where they did things wrong and had bad consequences to blame it on just luck or one mistake. So when it’s bad management, it’s a melting ice cube.

It’s a value trap. If it’s worth $200 billion today, but they’re going to make it worth $150 billion next year, it doesn’t matter if you’re buying it at $75 billion or $200 billion. The value is eroding.

But we don’t think the value is eroding at Boeing anymore because we think there is new management. We’re confident that new management has firm control of the enterprise and is doing an importantly good job and their ability to execute has just been totally different over this period of time. And their fundamental business prospects are beyond extraordinary.

We’ve underinvested in aircraft for 10 years. No one can build enough. Everyone wants more.

And the capacity is in two companies and it’s highly unlikely to become in three or four. And they can’t meet demand and they’re sold out for a long time. Their problem has been that they just haven’t been able to build the planes in an economic fashion.

And they seem to have been solving that nut. They seem to be building more consistently with quality. No doors are falling off planes in a long time.

My goodness.

[Tobias] Which is good.

[Charles] Which is good. And look, it’s $150 billion equity cap doing $90 billion worth of sales. And those sales are going to grow for 10 years.

You can’t meet demand in the next five years almost under any scenario that’s reasonably credible. There’s always… Go ahead.

[Tobias] Boeing’s big misstep was they had a plane that they wanted to upgrade. I forget the name of the plane. They stuck heavier engines on and that changed the angle of attack or something like that.

So it had to be… They had to control the angle of attack with a computer which evidently can break down. Is that…

That was their…

[Charles] That was the 787, right? No, I’m sorry. Not the 787.

The 787 was never a problem plane. It was the 37 MAX, right? Anyway, yes.

It was their workhorse. Two of them crashed over the space of a very few months. Relatively new aeroplane.

And that was… You know, that was previous management. That was one major misstep of previous management.

But there were a bunch and they just couldn’t seem to shoot straight. Had that been their only thing? You know, they had that one problem.

Okay, fine. But then a door blows off an aeroplane because someone forgot to put a nut in place. And, you know, there were lots and lots of stories of missteps that, you know, happily didn’t become like, you know, crashes.

But yeah, they messed up that aeroplane. And they did a bunch of other mess ups. They’ve now been making that aeroplane.

It’s the same plane, but the controls are a little different. And the pilots know that it could happen. So they know what to do if it happens.

I think any pilot who flies anything like that aeroplane knows exactly what could go wrong. And they’ve been trained on it. And it’s a problem that’s now fixed.

[Tobias] Making sure those doors are screwed on properly.

[Charles] Also very important.

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VALUE: After Hours (S08 E12): Boeing Stock: Turnaround Opportunity or Value Trap?

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