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Boeing Is Presenting an Opportunity

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- By Mark Yu

At this point, 51 countries have taken the wings off of Boeing Co.'s (BA) 737 Max aircraft following the Ethiopian Airlines crash.

For safety reasons, Boeing also announced it recommends this action. Investigations have yet to conclude if the Boeing 737 Max 8 is at fault as a similar aircraft was also involved in last year's Lion Air crash.

The 737 has been the aerospace company's largest delivery in recent years.

Boeing's 737 product line includes the 737 Max 7, 8, 9 and 10. In 2018 alone, Boeing 737s represented nearly 72% of its deliveries. The 737 program also has the largest number of undelivered units that have had firm orders from customers, followed by Boeing 787s. There are 4,636 orders that are yet to be delivered and the 737 Max accounts for at least a third of Boeing's revenue.

As a result, investors should worry about the future impact on Boeing's financials until 737s are again allowed to resume their corresponding flights.

Shares of Boeing are down nearly 12% since the Ethiopian plane crash.

Despite the souring mood on Boeing shares, it is important to remember this is not the first time the company has faced grounding of its aircraft. Back in 2013, Boeing 787 Dreamliners were grounded because of fire safety concerns and these aircraft are still being manufactured and delivered today.

Being the world's largest aerospace company, Boeing appears to have the wherewithal to overcome the present difficulties.

Analysts are confident in the company's cash situation and were already expecting Boeing to eventually halt its deliveries but still keep building 737s and hold the aircraft in inventory prior to today's announcement.

Grossly shaving about 10% of average analyst revenue expectations for 2019--assuming Boeing encounters delayed revenue recognition because of its delivery pause--would provide a figure of $300 a share when multiplied with the stock's three-year price-sales multiple. This is markedly lower than Wall Street's estimate of $456. Today's share price of $373 falls between the two.

There is no doubt Boeing will be able to carry on beyond the present turbulence in its long flight.

Disclosure: Long Boeing.

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This article first appeared on GuruFocus.