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Do Boeing Investors Have Their Heads in the Sand?

Tickers in this article: BA

CHICAGO ( TheStreet) -- The Boeing (BA) 787 has been grounded for three weeks, investigators still can't find a cause for its two lithium-ion battery fires and on Tuesday All Nippon Airlines , the biggest 787 operator with 16 aircraft in its fleet, seemed to throw up its hands as it announced that starting in March it will serve a new selection of premium tea and sake on its international flight.

Boeing investors don't seem all that worried. On Tuesday, Boeing shares closed at $75.89, up about 1% from the previous day's close. At mid-morning Wednesday, shares were trading at $75.83, down 6 cents.

Amazingly, Boeing's share price is virtually unchanged from its opening price of $76.21 on Jan. 15, the day before the Federal Aviation Administration grounded the 787 airplane.

Another amazing fact is that during the Boeing earnings call on Jan. 30, the company said it would deliver 60 of the planes this year; boost 787-8 production to 10 a month by the end of the year; begin production of a newer, bigger model, the 787-9; and review the outlook for the 787-10.

At times in its history, Boeing has been well-served by its ambition and confidence. But there is a case to be made that the 787 program is not, at this moment, a place where investors should retain their confidence.

"We believe the disruptive effect on Boeing's commercial aircraft business over the next 12-18 months is going to be far greater than the market is currently assuming," wrote BB&T Capital Markets analyst Carter Leake, in a report issued Monday.

Leake, a longtime Boeing booster, downgraded shares to hold from buy on Jan. 7 and to underweight from hold on Jan. 17. "We have complete confidence in Boeing's ability to ultimately rectify any problems, but neither we, nor anyone on the street, has any idea as to complexity, cost and impact of any such fix," Leake wrote at that time.

In his report on Monday, Leake reiterated his view that the share price faces long-term obstacles. "We remind investors that just having the 787 fly again moves us from 'disaster mode' to 'caution mode' as any smoke incident after an un-grounding will almost certainly elicit capitulation selling," he wrote.

As for Boeing's earnings day optimism, Leake wrote: "Other than the large overhang of the 787 grounding, this quarter's strong operating performance (both cash and EPS) would likely have marked a turning point for Boeing as it seemed to us the 787 was finally on a clear path to cash break even.

"But we are reminded of the old saying, "Other than that Mrs. Lincoln, how was the play?" when discussing any non-787 related positive trends," Leake wrote. "Nothing else matters until Boeing can prove that the 787 will be delivering again in short order.