At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
Investors in Canada's claim to airplane fame -- Bombardier (OTC BB: BDRAF.PK) -- got a rude awakening yesterday when ace equities analyst Sterne Agee pulled its endorsement on the stock. It was only a downgrade to neutral, sure, but even that was enough to shave 7% off of Bombardier's market cap.
What was it that earned Bombardier such a "Sterne" rebuke from Wall Street? In a word: Boeing (NYS: BA) . Bombardier, you see, has been making a major effort to invade Boeing's turf in the international jetliner market. Just this past summer, I described a series of successes Bombardier had booked, winning orders for its new jet from such brand-name customers as Lufthansa and US Airways (NYS: LCC) affiliate Republic Airways (NAS: RJET) . But already, Sterne sees worrisome signs that Bombardier's growth spurt is stalling.
According to the analyst, airlines continue to prefer buying planes from "well-entrenched" Boeing and Airbus, curbing Bombardier's ability to win market share in the single-aisle airliner market. This has Sterne tempering its enthusiasm for the stock, warning that "wide-scale adoption [of the CSeries] will take longer than we earlier anticipated." And it's not just Sterne saying so. According to The Wall Street Journal, Bombardier recently announced that it's trimming production of the CSeries to better track weakening demand for the aircraft.
Bombardier's loss is Boeing's gain
Now admittedly, Bombardier is a Canadian company, with all the weird ticker iterations and confusion about buying the stock that this entails for U.S. investors. So why should we care about this downgrade at all? In two words: "Boeing," again.
You see, weakening demand for CSeries jets may be bad news for Bombardier, but it's simply delightful news for Boeing shareholders. While Sterne still believes Bombardier will "hit its target for 300 firm orders" eventually, the analyst's decision to downgrade postpones Boeing's day of reckoning. If the analyst is right about Bombardier's CSeries setbacks (and with Sterne rated in the top 10% of investors we track on CAPS, I'd say chances are good it is right), then Boeing would seem to be weathering its new competitive environment just fine.
Meanwhile, and Bombardier aside, the health of the aerospace market in general seems to be pretty good as well. Good enough that Airbus is said to be considering a ramp-up to building 50 single-aisles a month. Good enough that United Technologies (NYS: UTX) just shelled out a whopping $16.5 billion to acquire aerospace peerGoodrich (NYS: GR) and capitalize on the growth prospects.
Foolish final thought
Now, to be clear, Bombardier's downgrade isn't in and of itself going to convert me into a "Boeing bull." I still think Boeing's overpriced. I still think the company's new foreign rivals pose a threat. And I still believe certain of these rivals (such as Embraer (NYS: ERJ) , which like Bombardier is building a rival regional jetliner, but unlike Bombardier is easily traded on U.S. stock exchanges) offers a better value proposition for investors.
But as far as "incremental positives" go, Sterne's downgrade of Bombardier -- and the reasons behind it -- clearly favor Boeing. If you own the latter, then bad news for the former is good news for you.
Can Boeing capitalize on Bombardier's weakness?Add Boeing to your Fool Watchlistand keep up to date on all the news, good and bad, affecting America's premier planemaker and its rivals.
At the time thisarticle was published Fool contributorRich Smithowns shares of Embraer.You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 287 out of more than 180,000 members.Motley Fool newsletter serviceshave recommended buying shares of Embraer. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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