The Ratings Game: Boeing stock plunges as bailout prospects fail to comfort investors, and may even be a bigger concern

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Shares of Boeing Co. plunged Wednesday toward a seven-year low, as the prospects of a taxpayer bailout of the aerospace giant failed to allay investor fears of potential liquidity issues, as the COVID-19 pandemic continues to cripple the aerospace industry.

Analyst Robert Stallard at Vertical Research Partners suggested a government bailout would be far from a panacea for Boeing, as it would leave the company saddled with debt and subject to stringent regulatory oversight.

Boeing’s stock BA, -19.44%  dropped 16% in morning trading, and was headed for the lowest close since August 2013. The stock was by far the biggest loser among the Dow Jones Industrial Average DJIA, -5.95%  components. The price decline was acting as a 132-point drag on the Dow’s price, which was down 915 points.

Boeing’s stock has already plummeted 62% in March, which puts it on track to suffer its worst-ever monthly performance, surpassing the previous record decline of 35% in September 2001.

The selloff comes despite President Donald Trump saying Tuesday, that “we have to protect Boeing,” as part of a “big, bold” stimulus package to combat the impact of the coronavirus outbreak. Separately, Boeing said late Tuesday that it supports a “minimum $60 billion” in government aid to help the aerospace industry navigate the negative impact of the outbreak, and said it was looking to access public and private liquidity and loan guarantees.

Don’t miss: Trump calls for ‘big’ stimulus as he supports checks to Americans, help for airlines.

Also read: Here are the industries that could get coronavirus aid from the U.S. government.

“Ultimately, we think the U.S. government will take the view that Boeing is ‘too big to fail,’ but that could provide little comfort to equity investors,” Stallard wrote in a note to clients.

He said that while Boeing’s liquidity situation “does not look pretty,” government aid and public markets would be sufficient to keep the company afloat. “However, this could leave Boeing so encumbered with debt that it is unable to effectively compete,” Stallard wrote. Read about Boeing credit downgrade.

See related: Boeing’s push to preserve cash and tap huge credit line spooks investors.

Given Boeing’s cash challenges, Stallard said it “makes sense” for Boeing to suspend its dividend, which would save the company about $4.7 billion in cash a year. Boeing has already moved to suspend share repurchases.

Boeing currently pays a quarterly dividend of $2.055 a share. That implies a dividend yield of 7.88%, compared with the yield for the SPDR Industrial Select Sector exchange-traded fund XLI, -10.02%  of 2.92% and the implied yield for the S&P 500 index SPX, -5.56%  of 2.51%, according to FactSet.

Stallard also noted the “moral hazard” of a Boeing bailout, similar to when banks were bailed out during the financial crisis.

“This is a company that boasts on its website that it has bought back $35 billion of shares and paid $15 billion in dividends over the last 5 years,” Stallard wrote. “It has also paid executives egregious amounts of money and been implicated in two fatal air crashes.”

Read more: Congressional report shows ‘culture of concealment’ at Boeing.

Boeing bought back $6.91 billion worth of its shares in the fourth-quarter alone, and paid out roughly $1.2 billion in dividends. In 2019, then-Chief Executive Dennis Muilenburg received total compensation of $14.25 million, compared with the annual total compensation of a “median employee” of $158,869.

Stallard said not only would it be “tricky” to get a bailout through Congress, it would likely require regulatory oversight similar to the strict measures defined by the Troubled Asset Relief Program (TARP) that bailed out the banks.

Also read: Opinion: A better and fairer bailout during the financial crisis was possible, Soros says.

He reiterated his hold rating while cutting his stock price target to $154 from $183.

“While on paper the price looks attractive, the timing does not,” Stallard wrote. “The impact of COVID-19 on aerospace has yet to be fully appreciated in our view, while the 2008-09 history shows that Boeing’s valuation can easily get worse before it gets better.”