Boeing's [BOE] share price is down over 37% since the start of the year. Unsurprisingly, the stock lost altitude as the coronavirus took hold and flights were cancelled around the world. On 20 February, Boeing's share price closed at $336.23; a month later, on 20 March, it closed at just $95.01 having fallen an incredible 71.75%. While Boeing’s share price did stage a recovery of sorts, the stock has been range-bound since July, trading between $150 and $170.
Now, with the return of the 737 MAX to the skies, is Boeing's share price set to gain altitude?
Why does the Boeing 737 MAX matter for Boeing's share price?
The Federal Aviation Administration grounded the 737 MAX aircraft after the Ethiopian Airlines crash in March 2019 — the model’s second crash within 5 months.
With a backlog of orders for the aircraft, the grounding order hurt Boeing’s share price and cash flow at the worst possible time.
“The MAX has cost us a lot of money and we’ve had to sort of up the ante with respect to liquidity to make up for the fact that we couldn’t ship the world’s most popular airplane,” Boeing’s CEO Dave Calhoun told CNBC in October.
Last week, regulators re-certified the aircraft and caused Boeing’s share price to take off 8% early Wednesday morning. Peter Arment, an analyst at Baird, upgraded his rating on Boeing to Buy after the recertification, as reported by investment website Barron’s. According to Arment, "the recovery story will be multiyear, requiring investors to look further out with each year improving." The analyst sees a return to the glory days of Boeing's share price, when it traded above the $300 mark.
"the recovery story will be multiyear, requiring investors to look further out with each year improving" - Peter Arment, analyst at Baird
On the bears’ side, Barron’s point to UBS analyst Myles Walton, who doesn't think that the recertification of the aircraft will lead to a sudden surge in demand. Walton cites recent cancellations in orders for the aircraft and 100 jets that need to be resold as the original buyers have pulled out. The analyst has a $150 price target on Boeing, to go alongside his Hold rating.
Walton may have a point. Boeing's gains were short-lived last Wednesday, with the stock closing 1.5% down on the week.
Where next for Boeing’s share price?
The 737 MAX’s all clear has provided a much-needed boost for Boeing, but the manufacturer is now operating in a drastically different travel industry. Last quarter saw another rough set of earnings, with revenue at $14.1bn — better than analyst expectations, but still down 29.43% from the same period last year. Losses per share came in at $1.39.
Boeing will now be able to deliver the 737 MAX to customers at a time when it badly needs cash. In the third quarter, Boeing posted a net loss of $466m, down from a $1.2bn profit in the same period last year. Commercial aircraft sales were down 56% year-on-year, coming in at $3.2bn. In the first nine months of 2020, Boeing has lost a net 331 orders for new planes.
To limit further losses, Boeing is now in cost savings mode. At the start of the year, the manufacturer had 160,000 staff and, by the end of 2021, it hopes to have 130,000. According to CNBC, Boeing's CFO Greg Smith is evaluating the whole company in search of cost savings, including reducing office space by 30%. Clearly, shareholders will be watching closely for any further plans Boeing has to reduce its net debt.
Given how far Boeing's share price has fallen, the worst could already be priced into the stock. With a vaccine rollout likely in 2021, air travel could rebound, along with demand for Boeing's aircraft. That could make Boeing's share price as it stands something of a bargain. That said, as Baird's Peter Arment suggests, this recovery is likely to take several years.
Among the analysts tracking the stock on Yahoo Finance, Boeing carries a $200.55 price target. Hitting this would see a 3.04% downside on the current share price (as of 24 November’s close).
|Operating margin (TTM)||-11.32%|
|Quarterly revenue growth (YoY)||-29.20%|
Boeing's share price vitals, Yahoo Finance, 24 November 2020