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A China Eastern Airlines 737-800 tragically crashed Monday, sending shares of Boeing lower. Wall Street is hopeful that Monday’s crash wasn’t a MAX-like issue, but analysts want to see investigation results before making any bold predictions.
Wall Street is still gathering facts.
Melius Research analyst Robert Spingarn pointed out in a report that the plane was not a 737 MAX jet. The Boeing (ticker: BA) 737 MAX was grounded worldwide for almost two years after two deadly crashes that were caused partly by new flight control software. The China Eastern (CEA) plane was a so-called 737 NG model. The NG family of 737 jets preceded the MAX with the first jets delivered in 1997. Boeing has delivered more than 7,000 NG jets to 225 customers over time.
NG safety has been excellent over time, equivalent to the comparable Airbus (AIR.France) product and one of the safest family of jets ever produced.
“If today’s accident is the result of pilot error, airline error (maintenance), or an exogenous event (weather), we would expect investors to return to their prior outlook and thesis for Boeing, albeit delayed for any impact to MAX reinstatement,” wrote Spingarn in a note Monday. The MAX isn’t recertified to fly commercially in China yet. He believes the accident might delay that process.
“However, should the source of the accident be a mechanical failure or design issue, the investment thesis for [Boeing] will be negatively impacted with consensus forecasts declining and shifting to the right,” added the analyst. Shifting to the right means earnings and cash flow recover further out into the future.
Spingarn has a Buy rating on Boeing stock. His price target is $262 a share. Baird analyst Peter Arment rates shares Buy, like Spingarn. His price target for shares is a higher $306.
Like Spingarn, Arment noted the plane wasn’t a MAX in his report. “According to flight tracking radar images, the flight was at cruising altitude when it nosed over into a vertical dive,” added the analyst. Arment called that scenario “unusual,” noting radar showed there was no trouble before the dive.
Cowen analyst Cai von Rumohr wrote Monday that China Eastern has a good safety record as an airline and that the plane involved was delivered in 2015. He also noted that China Eastern was grounding all its 737 NG jets pending the investigation.
“Under normal circumstances, authorities would not ground all 737s after a crash unless there was reason to expect a common problem,” wrote the analyst. “Given [Boeing’s] problems with the 737 MAX, there is some chance that customers may not want to fly on a 737 until the cause of the [crash] is determined not to be a design or manufacturing issue.”
Von Rumohr rates Boeing shares Buy. His price target for the stock is $230.
Lu Xi doesn’t cover Boeing stock. She covers China Eastern for Citigroup. She noted Monday that the crash ended a 4,227-day period of no major crashes for the entire Chinese commercial aviation industry.
Boeing shares closed down 3.6% on Monday at $185.90. Shares traded down to a low of $180.61, recovering through the day to close up about 3% of that low. Shares were down 0.2% in premarket trading Tuesday. S&P 500 and Dow Jones Industrial Average futures rose 0.3% and 0.5%, respectively.
Write to Al Root at [email protected]
