Buy Boeing Stock. Things Are Finally Going Right With the MAX Jet, Pandemic, and Oil Prices.
The pandemic slammed air travel and demand for jets.
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To say that Boeing has endured a brutal two years would be an understatement. The company’s newest single-aisle jet failed in two deadly crashes, plunging the company into an almost-two year struggle to win permission for the 737 MAX to carry passengers again. In the middle of that process came Covid-19, which decimated demand for commercial air travel, and jets.
Now, things are looking up. The improving outlook was enough for Cannaccord analyst Ken Herbert to recommend buying Boeing (ticker: BA) stock. Friday, he upgraded shares to Buy from Hold and lifted his target for the stock price to $275 from $200 a share.
“Our upgrade is based on three factors: 1) the MAX return to service; 2) the improved outlook for travel….and 3) the stabilization in the wide-body outlook,” wrote Herbert in his research report. The MAX is back in service after being grounded, which will help Boeing generate cash flow. Last year, the company paid to build hundreds of MAX jets, but couldn’t sell any, draining cash.
Reasons two and three amount to the fact that the outlook is improving as people are vaccinated against Covid-19. “An uptick in air travel and continued stimulus will enable [Boeing] to see an increase in orders after several quarters or very low activity,” Herbert wrote.
Air travel in the U.S. is still down about 53% year over year this past week, but that is better than the declines of 60% or 70% seen in recent months.
Even higher oil prices help. Benchmark crude oil prices went past $65 a barrel recently. “A continued increase in crude prices will continue to put a premium on new technology, such as the MAX,” said Herbert. New planes are far more efficient than older models, and jet fuel is a big expense for any airline.
At $275 a share, Boeing stock and debt would be worth about $200 billion, or about $50 billion to $60 billion short of its all-time high, set in 2019. That value gap is one way to assess the damage done by the jet’s problems and the pandemic.
Herbert’s peers are moving in his direction. Now, about 46% of analysts covering Boeing stock rate the shares at Buy. A few months ago, that number was less than 40%. It has been quite a fall from grace with Wall Street; about 80% of analysts rated Boeing shares at Buy back in early 2019.
The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 57%. Boeing’s 46% shows Wall Street is still a little cautious about the stock.
Boeing shares were down 0.4% at $223.80 in morning trading. The S&P 500 was up about 0.4%.
Write to Al Root at [email protected]
