The BA 737 MAX was grounded in Mar 2019 and it seems unlikely that the plane will be back in the air even 1 year after the grounding. This raises major concerns on the design of the BA 737 MAX as the regulators globally will be looking very closely at the plane. There is some risk whether the issues will be fixed with software and if hardware design change is required it will be a huge blow to BA.
BA is still at a market cap of $195B and an enterprise value of $220B with $25B debt. There could be many penalty payments to airlines for the grounding and delays which could be drag on near time earnings.
If MAX is certified soon and deliveries resume and there are no more issues then BA EPS could return to $20 and then grow from there. The company has a fantastic competitive position as a duopoly with Airbus and has a stable legacy Jet and US defense business. The current price of $340 discounts a lot of potential future growth and a company backlog of $470B as of 3Q2019.
As of now BA is a watch and there could be a reasonable entry point on next market correction or if further unexpected MAX delays are announced.
Selling Jan 2022 puts for $350 at a premium of $62 allows an entry price of $290 per share and a $170B market cap valuation. Selling puts on further correction of BA to $320 could allow for an entry with $150B market cap which could allow for lower risk.
No comments:
Post a Comment