Boeing Sold 175 Planes Thursday, So Why Did the Stock Drop?

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Thursday was one of those days that seemed to be bursting with news reports from and about Boeing Co. (NYSE: BA). There was almost too much for investors to pick from, and that gave them a reason to take the stock down nearly 1% on a day when the company firmed up an order for 175 new 737s. We’re not making this up.

We noted yesterday that the U.S. Department of Commerce made its final determination on a Boeing complaint against Canadian aircraft maker Bombardier for dumping the company’s CS-100 at below cost in the United States. The Commerce Department reiterated its 300% duty on imported Bombardier planes seating 100 to 150 passengers. There are still several steps before the duty becomes official, but it’s nearly a sure bet. Then there are likely to be appeals from Bombardier.

Boeing also announced Thursday that it had finalized an order for 175 of the company’s 737 MAX airplanes. At list prices the deal is worth $27 billion and includes options on an additional 50 aircraft. The order was announced as a commitment at last month’s Dubai Air Show, which means the final contract was already priced in. Boeing’s order book now shows 685 net new orders this year for its 737 family and a total of 844 net new orders for the year. That should push the company’s book-to-bill ratio for the full year above 1.1.

The company also announced that the U.S. Federal Aviation Administration (FAA) granted certification for its KC-46A tanker. The tanker is a modified version of Boeing’s 767, and the FAA certification verifies that the new tanker is both safe and reliable, according to the press release. The plane also requires a second airworthiness certification that the company and the U.S. Air Force are currently working on.

Finally, Boeing and Brazilian aircraft maker Embraer S.A. (NYSE: ERJ) confirmed that the two companies have been discussing a “potential combination, the basis of which remains under discussion.” According to the statement, a transaction is subject to the approval of the Brazilian government and regulators, the two companies’ boards and Embraer shareholders.

The possible tie-up with Embraer is almost certainly a response to the Airbus-Bombardier deal that gave Airbus ownership of the Canadian company’s C-Series project that includes the CS-100 and CS-300 single-aisle passenger jets. The Wall Street Journal reported that the price for Embraer would include a substantial premium to the Brazilian firm’s market cap of around $3.7 billion. The figure $9 billion was tossed out by some analysts.

That’s almost certainly what caused the share price to fall. Boeing expects to rake in more than $12 billion in cash flow this year and investors apparently think they should get a sizable chunk of that. They’re not satisfied, again apparently, with a stock price increase for the year to date of nearly 90%.

What makes Embraer appealing to Boeing is the company’s regional jets that carry between 70 and 140 passengers, roughly the 100 to 150-passenger range Airbus got with the C-Series. More than anything, Boeing does not want to give Airbus an uncontested market niche, even if the niche is rather small.

Another reason for Boeing’s interest in Embraer is that it’s just about the only available choice. The Brazilian government undoubtedly will drive a hard bargain, not just on price but on other issues like factory locations, job guarantees and continuation of the Embraer brand.

Boeing stock traded down less than 1% early Friday, at $293.25 in a 52-week range of $154.96 to $299.33. The stock’s 12-month consensus price target is $291.52.

Embraer shares pulled back from Thursday’s new 52-week high of $26.25 and were last seen at $24.76. The 52-week low is $17.58 and the stock’s 12-month price target is $21.34.