Part 5

The Boeing Company (BA)

Company background

The Boeing Company is the largest constituent of the Dow Jones Industrial Average and it is also the 5th largest constituent of the Industrial Select Sector SPDR Fund (XLI) with 4.52% of the ETF. The company is also one of the largest defense contractors in the United States due to its premier jet aircraft along with varied defense products positions that it has. Boeing has a wide range of customers including domestic and foreign airlines, the U.S. Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors, and certain U.S. government and commercial communications customers. Currently the company operates in four segments: Boeing Commercial Airplanes; Boeing Defense, Space & Security; Boeing Global Services; Boeing Capital Corporation.

Current position – Financial performance, Future Business Trends

Boeing remains the largest aircraft manufacturer in the United States. In our opinion an important growth catalyst for the company should be the increased U.S. defense budget as Boeing brings 34.3% of its overall revenues from its Boeing Defense (BD) segment. Although its commercial business outlook for the near term appears grim, over the long run, the jet maker holds immense growth prospects. The massive demand for commercial jets generates a strong demand for aviation services, which should bode well for this stock. However, COVID-19 outbreak and grounding of the 737 MAX jets significantly impacted Boeing’s business. Particularly, lower 737 deliveries have been hurting its earnings and cash flow for past couple of quarters. Moreover, Airbus beat Boeing as the world’s largest plane maker, for the first time in last eight years in 2019. This may have caused its share price to underperform its industry in the past year.

Per Boeing’s latest commercial market outlook (CMO), the company anticipates that the world will need 44,040 new planes, worth $6.8 trillion between 2019 and 2038. This estimated figure reflects a 3.1% improvement over the company’s prior 20-year forecast for jetliner demand.

Boeing expects the commercial fleet to be fueled by sustained annual growth in commercial passenger traffic along with a big wave of retiring, old planes. Of the total units, 44% of the demand will be for the replacement of old aircraft, while the rest will support future growth. Considering such solid projections for a steady improvement in passenger and freight traffic, demand for Boeing’s diverse family of commercial airplanes should continue to witness a notable uptick, over the long run.

Boeing’s cash and cash equivalent at the end of first quarter of 2020 was $15.5 billion, compared with $10 billion at the end of 2019. On the other hand, the company’s short-term debt and current portion of long-term debt is worth $5.17 billion as of Mar 31, 2020, compared with $7.34 billion as of Dec 31, 2019. This remains much lower than its cash reserve balance as of Mar 31, 2020, indicating the jet maker’s ability to pay off its short-term obligations.

Moreover, the company’s current ratio was 1.18 as of Mar 31, 2020, compared with 1.05 as of Dec 31, 2019. Now, not only does this ratio has improved but is also more than 1, thereby indicating it has enough capital on hand to meet its short-term obligations. This makes us optimistic about the firm’s ability to meet debt obligations in the near future.

Technical Analysis

From a technical standpoint the stock looks vulnerable at the moment as it has already appreciated substantially in the last 8 weeks moving from the $90 lows up to $234. This represented a 160% increase in less than 2 months for Boeing’s stock, which we now believe is due for a stronger pullback. As you can see the chart for the stock is almost identical with the chart of XLI and shares a lot of similarities with the SPY – a strong initial rebound, stopped by the 100-day moving average and around the 61.8% Fibonacci retracement level from the March 23rd lows. Additionally, the RSI has moved sharply lower and is currently sitting below 60, which is another signal that there might be more weakness ahead for the stock. However, we believe that a bigger decline in the stock would present a tremendous long-term buying opportunity for our followers.

We will be interested in opening our initial BUY positions around the $160 support zone and then in case the price continues to slide we will look to further add to our long Boeing exposure at the $140 level. On the upside we will be targeting the $240 and $280 levels for collecting our profits from the stock.

Visa Inc. (V)

Company background

Incorporated in 2007 as a Delaware stock corporation and headquartered in San Francisco, CA, Visa Inc. operates retail electronic payments network worldwide. The company went public in March 2008, and since then has established itself as one of the leaders in the industry that it operates in. As a major fintech player, Visa has managed to keep up with the always changing, growing and expanding evolution of both the financial and the technological sectors.

Some of the key company products and services include:

It provides transaction processing services (primarily authorization, clearing and settlement) to financial institutions and merchant clients through VisaNet, its global processing platform.

• It offers a wide range of Visa-branded payment products, which its financial institution clients would develop and offer core business solutions, credit, debit, prepaid and cash access programs for account holders (individuals, businesses and government entities).

• It provides other value-added services to its clients including fraud and risk management, debit issuer processing, loyalty services, dispute management, digital services like tokenization as well as consulting and analytics.

• It manages and promotes its brands to the benefit of its clients and partners through advertising, promotional and sponsorship initiatives with the Olympic Games, FIFA and the National Football League among others.

In recent years, the company has evolved its organization to accelerate the migration of digital payments across new channels including ecommerce, mobile and wearables.

• The company has adopted new digital payment and security technologies, such as contactless and tokenization.

• It has accelerated the pace of change in digital payments by making application programming interfaces (APIs) available in an effort to increase access to its network, products and services, offering innovation opportunities at its 10 global innovation network locations and building partnerships with new players, such as financial technology companies, commonly known as fintechs.

Current position – Financial Performance and Future Growth Prospects

The primary revenue segments are: Service revenues (36% of gross revenues in fiscal 2019), Data Processing revenues (34%), International Transaction revenues (25%) and Other revenues (5%).

Visa has seen its revenues growing consistently over the years witnessing 10-year CAGR (2009-2019) of 12.8%. In the first half of fiscal 2020, the same grew 9% year over year. Our analysis shows that the company is likely to hold on to its revenue momentum in the coming quarters on the back of its strong market position and attractive core business that continues to be driven by new deals, renewed agreements, profitable acquisitions, increasing spending via cards, shift to digital form of payments and expansion of service offerings. Though the COVID -19 will likely create some pressure on the revenues, the metric should maintain its rising trend once normal economic conditions and consumer behavior return.

One of the most important growth drivers for Visa moving forward was the acquisition of Visa Europe in June 2016. The company expects to gain a competitive edge from a robust business model and increased scale with the acquisition of Visa Europe as it projects Europe to be a $3.3 trillion payments market and high growth region in the future. The deal has been accretive to the company, having contributed to its top line by bolstering payments volume, cross-border volume and processed transactions. This trend is expected to continue in the coming years, which is a great positive for the company and for the stock.

Visa enjoys a strong cash and available-for-sale investment position along with strong free cash flow. Its strong balance sheet enables it to make acquisition and fund capital expenditure that drives long-term growth. Backed by its strong cash position, the company remains committed to boost shareholders’ value. Visa has increased its dividend each year since 2009, with the latest being a 20% hike in October 2019.

Technical Analysis

From a technical standpoint the stock looks vulnerable at the moment as it has already appreciated substantially in the last 8 weeks moving from the $135 lows up to $202. This represented a 49.6% increase in less than 2 months for Visa’s stock, which we now believe is due for a stronger pullback. As you can see the chart for the stock is almost identical with the chart of the SPY and also shares some similarities with the XLI – a strong initial rebound, stopped by a major horizontal resistance line right around the pre-COVID all-time highs for the stock. The two key differences with the XLI though are that Visa has overtaken the 50-day moving average and the 100-day moving average on the way up and that the price has extended the retracement to the 78.6% Fibonacci retracement level, thus almost regaining its all-time highs. However, Visa’s stock struggled greatly to break above the strong horizontal and psychological resistance at the $200 mark and was rejected in a very volatile manner as the stock dropped with almost 7% in the period June 10th-12th. This in turn was a strong indication that the most recent sharp and powerful uptrend from the lows has probably lost its momentum. The sharp 7% decline took the price below the key diagonal upward sloping support that was supporting the uptrend since March. Additionally, the RSI has moved sharply lower and is currently sitting below 60, which is another signal that there might be more weakness ahead for the stock. However, we believe that a bigger decline in the stock would present a tremendous long-term buying opportunity for our followers.

We will be interested in opening our initial BUY positions around the $180 support zone and then in case the price continues to slide we will look to further add to our long Boeing exposure at the $160 level. On the upside we will be targeting the $210 and $230 levels for collecting our profits from the stock.

We at Dow Experts enjoy analyzing the market and helping our followers maximize their profitability by following our trading and investing ideas, which are always supported by our rational investment approach.

In order to further provide our followers with a strategy on how to fully capitalize on the above-described patterns and correlations, we analyzed the performance of some of the biggest companies within the SPY and XLY that have a big impact on the overall performance of the two ETFs.

You can subscribe to our Full Package in order to receive all of our top stock and ETF picks and analyses for the month plus new Bonus reports every month!

Sincerely,

Add a comment