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Why did a Bernstein analyst raise their Boeing share price target?

The Boeing [BA] share price is yet to fully recover from the coronavirus pandemic. Since 10 February 2020, when the pandemic first hit the market, Boeing’s share price has fallen 33% (as of 5 October). 

Despite managing to claw back some losses towards the beginning of the year, it has been trading in something of a holding pattern since mid-March. Questions over demand for air travel and problems with its flagship planes have suppressed the stock.

Douglas Harned, managing director at Bernstein, raised his analyst rating for Boeing shares, forecasting a “global inflection” in demand for commercial aerospace. In what is likely to be a huge relief for investors in the sector, what’s the investment case in the context of this upgrade, and with the stock still suppressed, where could Boeing’s share price head in the medium-term?

 

 

Boeing’s share price is a ‘conundrum’ for analysts

Bernstein’s Harned upped his price target on Boeing’s share price from $252 to $279, implying a 26% upside from 5 October’s $224.42 close. Giving Bernstein confidence is growing vaccination rates against COVID-19, which should drive up demand for air travel. Down the line, he expects this will lead to more planes being delivered, with Harned upping his forecast for 737 Max deliveries to 57 per month by 2025, up from a previous estimate of 54.

However, Boeing is still facing some headwinds. Two deadly crashes involving the 737 Max gutted demand while the company was waiting for the Federal Aviation Administration to grant permission for the deliveries of the wider-body 787. The 737 is reentering service, and Boeing’s share price bounced in August when it emerged that the plane would be tested for recertification in China.

Going the other way, Vertical Research Partners analyst Rob Stallard cut his projections on Boeing across the board. Stallard trimmed his price target for the stock from $250 to $240 and moved his earnings per share forecast from $5.9 to $5.76. Stallard rates the stock a hold.

“While the company clearly faces near-term challenges, two of which it has little control over, we don’t see them as insurmountable. At the same time, the post-pandemic tide is rising, which should be good for all aerospace boats” - Vertical Research Partners analyst Rob Stallard

 

“We still find Boeing’s stock to be a bit of a conundrum,” added the analyst. “While the company clearly faces near-term challenges, two of which it has little control over, we don’t see them as insurmountable. At the same time, the post-pandemic tide is rising, which should be good for all aerospace boats.”

Still, Stallard’s price target implies a 6.9% upside on Boeing’s share price from 5 October, and if the aerospace giant can resolve these two issues, then the stock could take off.

 

Sentiment improving on Boeing’s share price

The impact of the pandemic on the aerospace industry cannot be understated. Boeing itself has forecast that the 10-year outlook for the global aviation industry, not just Boeing, is 7% lower than it was before the pandemic, as reported by the Financial Times.

By 2030, Boeing forecasts passenger jet deliveries for all manufacturers to come in at 19,330, a 7% drop from its 2019 forecast but an improvement on the 11% decline predicted at the end of last year. The company also raised its projects for the value of the aerospace and defence market from $8.7trn to $9trn in the next 10 years.

Executives at Boeing are forecasting that the global travel industry will be back to pre-pandemic levels by 2023 or the beginning of 2024. Domestic travel is expected to return fully next year.

“Passenger behaviour, snapping back to travel, is an underlying fundamental that gives us a lot of confidence” - Marc Allen, Boeing’s chief strategy officer

 

“Passenger behaviour, snapping back to travel, is an underlying fundamental that gives us a lot of confidence,” Marc Allen, Boeing’s chief strategy officer, said.

Sentiment among Wall Street analysts towards Boeing is improving Of the 26 analysts polled by Refinitiv in September, 15 rate Boeing either a buy or outperform – up from the nine analysts offering similar ratings in October last year. Back then, two analysts also offered sell ratings. That figure now stands at zero.

Boeing’s share price carries an average analyst price target of $271, suggesting a 21% upside on 5 October’s close.

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