Boeing’s Ripple Effects Tied To 737 Max 9 Groundings. Plus, Evercore ISI Delivers An Earnings Season Warning. 1/8/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast developments and the ripple effect straight ahead. Plus, shopping spree. Investors buying up retail names like Abercrombie, American Eagle and Crocs. Is this a sign the consumer is not done spending just yet? We'll debate that. And later, Tiger Woods and Nike are breaking up. NVIDIA setting records yet again. And two of our traders are ready to reveal their acronyms for 2024. One is flexing. The other has zoo animals on his mind. I'm Melissa Lee coming to you live from studio will be at the NASDAQ on the desk tonight.

0:49Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. And we begin with Boeing. Shares of the aerospace giant tumbling as much as 9 % today following the mid-air incident Friday night on an Alaska Airjet. That emergency led the FAA to grounding 737 MAX 9 planes until safety inspections of all of them are completed. Phil Obeau has been following the story since late Friday night. He's here with all the latest developments here and the ripple effects across the industry. Phil. And Melissa, we're waiting to see if there is a statement from Boeing regarding the news from United, which we'll talk about in just a little bit, about United finding loose plugs, or loose bolts, I should say, in some of the fuselage plugs that it has inspected in its fleet.

1:31Here's where the investigation stands right now. It's all about these fuselage plugs. These are essentially doors that are not operational doors anymore. They're in the side of the fuselage. They're put there by Spirit Aerosystems, which manufactures both the plug as well as the fuselage. The plane in question, the one that had the incident Friday night, had three reports of pressurization problems prior to that incident. And United, as I mentioned, reporting late today that it has found loose bolts in some of the early inspections it's done of the MAX 9s in its fleet. In the statement, United wrote, we have found instances that appear to relate to installation issues in the door plug.

2:15For example, bolts that needed additional tightening. The door plug in question, it's about 65 pounds. And this is the one that came off of the plane on Friday night in a suburb of Portland, landed in somebody's backyard. And there are NTSB investigators going and collecting it. That will now be sent to Washington for further analysis along with the data recorder from that aircraft. As you take a look at shares of Boeing, tomorrow is a big one. They're going to be holding an employee town hall at the Renton, Washington factory. That's where they build the 737 MAX. Dave Calhoun, CEO of Boeing, will be there, as will Stan Deal, who runs Boeing Commercial Airplanes.

2:59Stephanie Pope, the new COO. There will be members of Boeing's board there. There is no doubt that questions keep propping up here about quality control and why there seem to be these persistent issues that come up when it comes to the 737 MAX. That will be addressed tomorrow during the town hall. Also take a look at SPR, Spirit Aerosystems. This is the company that makes fuselages for the MAX. They also make the door plug. Now, no indication yet that they're responsible for what happened on Friday night, but certainly a lot of questions there, which is why Spirit was down. Look, Melissa, earlier in the day, pre-market, I think it was down 19, 20 percent.

3:39A lot of questions in terms of what's been happening at Spirit as well as with Boeing. Yeah, and other airline contractors also down on the back of just these fears that they are associated in some way with the accident. Phil, I'm curious, though, you know, when it comes to Spirit makes the plug and there are loose bolts, I mean, who's in charge? And there's sort of an implication here that whoever installed or whoever initially put the bolts in or tightened the bolts, there was no check afterwards. It seems to me that there would be a check afterwards that would catch loose bolts before it actually goes into flight.

4:11Well, I think you're making the correct assumption. It's not like they take a fuselage at Boeing and they say, well, it was built by Spirit. Everything's fine. Here we go. Having said that, Melissa, if you remember, it was about four months ago, there was an issue with holes that were drilled improperly by Spirit Aerosystems, and Boeing had to go back, had to go and do some checks and then correct that situation. In fact, they told, you know, some of the operators of those aircraft, hey, you're going to have to do some checks to make sure that the bolts are installed correctly. That's a question for Boeing that will certainly come up the next time Dave Calhoun does an interview in terms of how many checks are being done on what you get from Spirit.

4:55It doesn't mean that Spirit is sending you faulty fuselages, but what kind of quality control is taking place here? Because we seem to have this happening on a fairly regular basis. Given there's so many unknowns still at this point, Is it surprising, Phil, to you that the FAA approved an initial safety inspection regime, which seems to sort of put to rest some questions about how long the grounding will take place? It seemed to be a path to getting these MAX 9 planes back into flight. No, because I think that that's an indication that the FAA is fairly comfortable that if these inspections are done as they're laid out.

5:35And by the way, we reached out to Alaska this afternoon. Alaska has not begun the inspections, nor has United. That's likely going to happen either tonight, tomorrow. They expect it to happen relatively soon. Once they get the final, final approval from the FAA, the FAA would not approve this, Melissa, if they were not comfortable and confident that the system that they're putting in place to double-check the bolts, to double-check the installation, is the proper step. And after that, these planes are safe to fly. All right. Phil, thanks so much. Phil LeBeau covering all angles of this story. Right now, in terms of a stock perspective, it does seem to be a Boeing and Spirit Air Systems problem and not an airline problem, indicating that maybe this is not a prolonged issue that will ground flights for a long time, Guy.

6:18But still, how do we think about this? A company whose reputation is really, I don't know, put into question once again. Yeah, it's not the first time with Boeing. Obviously, over the last four or five years, we've done this story in different iterations, but we've done it a number of times. So I think the question is, how do you trade the stock? Look at their last quarter. So everybody thinks Boeing just makes commercial planes. They do. That's the lion's share of their revenue. But guess what? $18 billion in revenue last quarter. Almost$6 billion of it was defense. So this is a defense company as well.

6:45Tim talks about that. Forget about valuation for a second. And let's just talk about where the stock. Unfortunately, the stock had a huge rally. We rallied up the previous highs seemingly have failed given today. 50 % retracement of the fall low, 170-ish in this recent high gets you to 220. That's a logical place, actually, to start getting long again in stock. Now, I'm not saying you have to go race out and buy it, and quite frankly, they report at the end of the month. But if you're looking for a level, 220 makes sense. You've traded it in crisis and out of crisis. Yeah, and I'm long it now, and I was getting pretty excited about the move forward.

7:17Because if you think about the catalyst for Boeing, they are ultimately free cash flow. But before that, there's a couple of catalysts out there, including the 737 MAX certification in China. Yeah. And the question is, what will this do to that timeline? Will that push it back? You know, looking at the response from credit investors, and sometimes I look at what the bond markets do when there's equity stories on some level. And if you think about Boeing, what I'm seeing is reiteration that this is a company that will make$12.5 billion in EBITDA in 2026 with$10 billion in free cash flow, which is what the company looked like back in 2018.

7:53We've got a news alert here on JetBlue. Leadership changes to report here. Let's get back to Phil with more. Phil, take it away. Melissa, Robin Hayes, longtime CEO of JetBlue, is going to be stepping down on February 12th. Joanna Garrity, who is the current COO at JetBlue and has been in that position for a number of years, highly regarded within the industry and has done a very nice job at JetBlue, is going to be moving into the CEO position. That has long been anticipated that when the day comes that Robin Hayes is going to step down or is no longer going to be CEO, who's the natural successor, Joanna Garrity has long been considered the natural heir to the job.

8:34So she will take over as CEO on February 12th. By the way, Robin Hayes stepping down for some personal health reasons. He's been at that position for a number of years, Melissa, and it's interesting to see whether or not he leaves. He's going to stay on the board, but he leaves as CEO. What happens in the case that's before a judge in terms of the DOJ trying to unwind the proposed merger with Spirit? Does he go out with a bang, or does the judge say, no, I'm going to rule in favor of the DOJ? All right. Phil, thanks for the update. Phil LeBeau with some news on a JetBlue leadership change. How do you start thinking about this Boeing story?

9:16We've been here before. It seems like a difference. There were no casualties. It's not many, you know, plane crashes. It's you know, there are differences. Yeah. I mean, thank God for that. And that plane landing in a suburb. I mean, how horrific could that have been? But I think that it gets a little worse before it gets better. And maybe that is that 220 level. I don't know. But I looked at Airbus today. It was up two percent, two and a half. I mean, it wasn't looking like, oh, this is a massive change in this duopoly. So I think, like has happened in Boeing several times before, ultimately they will get through this and it'll be a speed bump.

9:52Yeah, this company's lost money for the last five years since they had those two very deadly crashes in 2018, 2019. There's been like no. I just want to say something. They had COVID to deal with. All right. This isn't this wasn't plane crashes that caused the company to lose money. It was that every airline grounded and didn't order new jets. I think that was the bigger issue. Well, and well, in 18 and 19, though, I mean, they had some serious issues. Right. Because they had lots of, you know, canceled orders and the like. So, again, yes, COVID. But again, your point about like 12, 13 billion dollars in EBITDA in 2026, maybe.

10:20You know what I mean? They've been losing money for years now. I mean, even post-COVID, right? Wasn't there this huge, you know, pent up demand for these planes? The China thing has been a story for a long time. And obviously they were longer into COVID than we were. But I mean, like to me, this company has like really fundamental issues. Like you can go back, just Google quality assurance Boeing. There's like 10 articles with all these whistleblowers going back to 2018 with those two crashes. So it's not surprising. This plane has a problem. Like, let's be clear. But again, what plane are we talking about?

10:48We're talking about the 737 MAX 9 and we're talking about all the 737s. I mean, there's 1 ,400 MAX planes that have been delivered to date. There's about 200 that are MAX 9s. Again, the reputational stuff, you guys are bringing this up. I'm not going to argue that this isn't a huge hit to the reputation. Do you look and see what plane? I do. I look and see if I'm flying. Do you still? 100%. I mean, like, and last week before this thing happened, there was talk about, like, things in a rudder or something in this plane that are, like, loose or something like that. Well, I think for a while people will be looking at where they sit and what kinds of planes.

11:21I mean, that's— There's no question about the emergency exit and the fact that those were, like, two empty seats on the plane only. It's shocking and amazing. Yeah. But is this a manufacturing flaw? Is there a design flaw? I mean, these things have big implications for the profitability of the company and how significant this is. And again, this is a company that's been slowly rebuilding free cash flow. And I'm not making light of this. You're all right to point out that they have reputational issues. And Karen's right to point out it's a duopoly. The reality is that they've got an order book of 4 ,000 maxes, and most of them aren't max nines.

11:53So I think this is going to be an opportunity. But I don't need to jump in there today, which is what I think you guys are saying, to buy the stock. All right. Let's turn to the markets now. Major averages finishing the day in the green thanks to a boost from big tech. The Nasdaq leading the way up more than 2%. NVIDIA, one of today's biggest winners, touching an all-time high after announcing new chips that can power AI from homes and offices. Meantime, in just the last hour, microchip technology warns, citing a weakening economic environment for its customers and distributors. The stock dropping nearly 4 % on the back of this news.

12:22And, of course, this comes after the news last week from Mobileye, warning about inventories held at the customer level. So what are we witnessing here in terms of technology? We have the clear winners here, and we have the ones that are really having some troubles. I think that's exactly right. You have winners. And the winners continue to win. And kudos to Karen. I mean, the NVIDIA things, for me, it was a tough it was a reach for me post earnings last quarter to stay anywhere constructive on the stock for a myriad of reasons. Here we are at an all time high. By the way, the same levels we traded up to two quarters ago in the after hours, if you remember, which is quasi interesting.

12:56But I'm glad you mentioned microchip. And on the back of the multi ordering, double ordering we heard last week for Mobileye. I mean, I think personally, I think that's going to be a problem going forward. I think there's a lot of that going on. But the stock market is completely either overlooking it or discounting it to a point. So I would be concerned that there's double ordering here. Clearly, the stock market is not. What is the thing you always point to, Karen, when stocks go down on the same things? Over and over again. This feels sort of like that, because we are seeing not just microchip with new news, but ADI, analog devices, also trading lower once again on the same sort of news.

13:28Even Texan right now being dragged down by a percent in the after recession. The same sorts of concerns plaguing these stocks once again. Right. Well, Well, clearly it's a bearish sign, but I did not say Happy New Year to Guy, which I really didn't know. Oh, yeah. Fantastic. Guy, that's so sweet. What is this? Isn't like the seventh week of January already? It's 25 already. Yeah. Yeah. Yeah, you're right. I'm down again on the same news. And that's sort of telling of a bear market in a space, right? Hopefully there's a divergence there between not all semis, of course. They're very different things.

14:00and then positive news today out of, I mean, NVIDIA. I'm surprised, actually, at the magnitude of the response of the stock. For NVIDIA. Yeah. I'm not exactly sure. They talked about great new prices. We don't know what those prices are. Right. Kind of overdone, actually. Carter Braxton Wirth pounded the table on NVIDIA today to the extent that Carter Braxton Wirth pounds the table. But he says he reiterates his December 19th note, which is buy NVIDIA for a breakout. And here we are. Well, there's an argument on the charts, apparently, and there's an argument on the balance sheet or on the income statement, I should say, and on the multiples.

14:36And again, there are those analysts out there that have$25 a share of earnings by 25, and that puts it at 21 times. So, you know, look, the fact is they still have a significant lead on competition. How much does that lead? How much does the margin start to erode? We don't know. But right now, the company's following through and new product dynamics are yet to be priced in. All right, let's stick with technology here. Our next guest is still betting on some of last year's biggest winners, and he's also bullish on a turnaround in China this year. Let's welcome in Dan Niles, founder and portfolio manager of the Satori Fund.

15:09Dan, great to see you. Happy New Year. Happy New Year, too. Dan, I want to start off with the microchip news because in a past life, you were a renowned semiconductor analyst. And on your list of top picks for 24 is Texas Instruments. And so I'm wondering to what extent, if at any, you are concerned about this issue of double ordering and some of the weakness that chip makers might experience who feed into automotive and industrial. No, I'm thrilled to see it because you have to remember, I have longs and shorts. So if you look at Texas Instruments, they went into this downturn early. And what we've been saying for a long time is that each semiconductor company is going to see this at a different time, depending on how much double ordering they had, their ability to meet demand.

15:59TI was able to meet demand early, so their revenues have gone down over 10 % year over year for four quarters in a row. We actually think there's probably some upside to 2024. For a lot of these other companies, like a microchip, et cetera, we think there's downside. And so TI was up 3 % last year. The semiconductor index was up 65%. So we have a lot of shorts in the semiconductor space to balance out the long that we have in TI, counting on the fact that things will normalize and it isn't different this time. Hey, Dan. So we were just talking about NVIDIA, which had this bang-up year last year, obviously up over 200%.

16:36A$1.3 trillion market cap broke out today. So that was a consensus long last year. It came in as a consensus long in 2024. How are you thinking about consensus in tech? And to the point that Mel just made about some of these names that have disappointed, it's Baby with the Bathwater. We saw Mobileye shoot first, ask questions later last week. How are you thinking about how investors are positioned? And how do you think about consensus right here? Well, I think last year it had nothing to do with earnings, right? Apple's Q4 December quarter EPS, which they're going to report in a couple of weeks, is down 10 % from where they started last year.

17:12The stock's up 48%. Tesla DPS for December quarter is down 50%, and the stock was up 100 % last year. Because of the run-ups into 2024 and our view that there's going to be a soft landing, the Fed's going to cut, and everything is just peachy, you're going to need these companies to start putting up numbers. And as you said, with Mobileye, the stock went down, I think, 25 % the next day when they announced negatively, you know, we'll see what happens with microchip tomorrow. But I think the rubber hits the road with this earnings season. And so for companies like NVIDIA, where I think you're going to get two more quarters probably of massive beats and raises, and you're paying a 28 PE for the stock, we own it.

17:52We were fortunate in that we came into today very long, that name. And we still think that's a good place to be. You look at other names, for example, NVIDIA's at 28 times, the market's at 20 times. You look at an Apple that's at 27 times and you go, really, I'm going to pay 27 times for a 5 percent revenue growth this year. I think that 5 percent is going to go down, whereas NVIDIA's number is going to go up. So I think the good news is this is going to be stock pickers in the Rana, I think, this next year, because you're not going to get stocks right just because you go, oh, it's Apple. It's big.

18:24The chart looks good. Buy it. You're going to actually have to get the fundamentals right to make money. We're showing on the screen, Dan, some of the names that you're along, you know, Amazon, Meta. We know Texan, biotech, Chinese Internet. That seems really interesting and quite contrarian at this point. What is the biggest risk in your view? What is your biggest fear about this trade? Because some of the stocks, I mean, the fundamentals seem OK, but, you know, the environment and just the foreign investment perception of them is terrible. Well, I'm glad you called it contrarian and not idiotic.

18:55So I'm pleased with that. But with regards to K-Web, you're right. I mean, it's the riskiest out of our picks. But I'm a big believer in that actions speak louder than words. And if you look at the China internet space, the Chinese government has been just viciously going after these companies ever since they blocked the Ant Financial IPO in November of 2020. And so if you look at their equivalent of FAANG, which is BAT, which is Baidu, Alibaba, and Tencent, even though the government's been doing this over the last three years, revenues have gone up 33%. The stocks, those three stocks, have gone down 53%.

19:32And the PE is now 13 times on average for those three compared to the Magnificent Seven, where you've got it about 34 times or so. And so all you need is to go from just vicious persecution to just benign neglect. And it's going to get better. And why I think we've moved into potentially that category is the government started to step up and buy stocks and trying to support these companies because they're below the levels that they were at the bottom of COVID, at the bottom of 2022. too. But the revenues are still growing. And so much like you saw last year, had very little to do with earnings in some cases, where the multiples just went up a lot.

20:11If you can just get some minor view that the government is letting up on this, I think you're going to see the stocks able to re-rate a lot higher. So definitely the riskiest, but also the most upside from valuation if we just get to a different regulatory regime. Dan, got to end it here, but thanks so much for joining us. Really appreciate it. Dan Niles of the Satori Fund. What do you make of China here? Benign neglect. Dan is definitely what we said he was being contrarian and not, you know, I don't think he's being idiotic or he's being contrarian. And this is a little bit of tease to my acronym.

20:50So I'll stop talking other than saying something I say all the time is that you make the most money when things go from terrible to just bad. And I think neglect. We know how bad we know how bad China is in terms of the macro. That's not really the story with a lot of these companies. You're not playing is e-commerce growth going to shrink two percent this year. That's not the story. So I totally agree with those. He has. It's amazing to think that when we're seeing those images out of China during COVID of people being wheeled out on stretchers online, you know, sick, just complete lockdowns, that these stocks are trading below those levels.

21:25Well below. I mean, it's it's just shocking to think about it that way. FXI 21 and a half line in the sand. We've looked at that chart a number of times. I just figured out what the B is in Tim's bicep trade. I'm going to try to figure out the rest in the break. But, you know, Dan makes an interesting point about valuations and growth and how certain stocks are awarded or rewarded for, you know, what they've done in the past and not necessarily living up to those expectations now. All right. Coming up, we are giving retail a try on big moves out of Abercrombie, American Eagle, Crocs and more. the guidance that had investors rushing in, and whether or not you should add any of these to your cart next.

21:59Plus, all the headlines out of J.P. Morgan's health care conference, where our own Jim Cramer is sitting down with top industry execs, the news, the stock reactions, and more when Fast Money returns. This is Fast Money with Melissa Lee, right here on CNBC.

22:22Welcome back to Fast Money. As a big ICR retail conference kicks off in Orlando, a number of retail names rolling out bullish guidance, and the stock surged on the news. Crocs closing the day up 20 % on strong guidance, and a Bank of America call on the stock. Abercrombie and American Eagle also up after raising their fiscal fourth quarter outlooks. Both companies citing spending momentum that's lasting beyond the holiday. Abercrombie CEO Fran Horowitz saying its women's business is expecting its best ever Q4 in sales. So is this another sign the consumer is not tapped out quite yet? We neglected to add Lulu, which also raised guidance, but not to the extent that analysts had wanted.

23:00What do you think of all this? Well, she's done just a fantastic job. And I've missed this one completely, despite my daughter telling me, you know, it's really good. Abercrombie, it's totally changed. You know, it's not the sort of super skinny, half naked people walking around. It's that worked for a while. So Tim is out of a job, right? The Ed campaign. So, I mean, she's done a spectacular job and just, I mean, top line growth, but running it so much more efficiently. I mean, the operating income margins are just so much better. It's not crazy expensive. It's 16, 17 times earnings. However, I feel pretty stupid having seen the stock at, I don't know, a third, a quarter of where it is now and thinking, eh, I don't know.

23:42So I'm not long that one. Lulu is a very different story. It's just expensive. They run a great business. But what's the right multiple? It's getting a way premium to market multiple. You put a market multiple on Abercrombie & Fitch, which Karen is right. It's not the A &F we used to talk about years ago that none of us across the board like for the right reasons. It's a change. And now at a company that's going to earn$6.20 next year, a market multiple, you get$115,$120 stock, I think, without batting an eye. And a company with a market cap of$5 billion, it does$5 billion in revenue if you just want to throw that out there.