Literally weeks after my post on the virtues of Boeing, the Machinists union refuses Boeing’s contract offer and threaten to strike.  Great timing, right?  Well, the truth of the matter is – developments like this are pretty normal in the course of an investing career.  I mean, think about it, the day after you buy stock in a company there are only two options: 1) it closes at a price higher than you bought it, or 2) it closes lower than the price you bought it.  My slightly muddled point being, that short term moves are pretty much just random noise.

Still, developments like these do warrant re-evaluating our original thesis.  You can re-read it here if you need a refresher.  Two major points drive the thesis:

• The prevalent force of globalization will drive long term growth in an industry with essentially two players.
• A compelling valuation, Boeing is trading at a price of 50-65% of a conservative estimate of its intrinsic value.

How will Boeing be affected if there is a strike?  In the short term, I’m sure it will be detrimental.  This is from Marketwatch.com:

“A strike could cost Boeing's commercial manufacturing business up to $120 million per day in lost revenue, according to estimates by Jefferies & Co. analyst Howard Rubel. A spokesman for Boeing had no comment about the impact a strike would have on the aerospace giant.”

Additionally:

“The union went on strike for four weeks in September 2005. It caused Boeing to deliver 21 less planes and cut the company's earnings by 25 cents to 30 cents that business quarter”

If we see similar results this time around, we could see a reduction of earnings – let’s say as high as $0.50 - $1 a share.  This would reduce Boeing’s overall earnings by about 20% on its $5.59 earnings for the last 12 months. 

Assuming that a strike – if it does happen – is a short lived phenomenon, it really doesn’t have any effect on our overall thesis.  Globalization will still be there.  The 787 will be built.  Who knows, the valuation may even get better!  I mean, assuming you didn’t rush right out and buy it after I first wrote about it (like I did), you may get an even better price if there is a strike.  Keep your eyes peeled.

Let me know what you think!