Boeing's (NYSE 🙂 stock is showing more power after the US Federal Aviation Administration (FAA) last week on the company's 737 MAX jet. Investors who repurchase the aerospace giant's stock are hopeful that the aircraft manufacturer is out of the woods after two years of turbulence.
In the past month, the company's stock has gained more than 20%, contributing to the 110% increase since the dip in March. The stock closed at $ 199.62 on Friday, down about 3% from the previous day's close. Despite the overall acceleration in 2020, the stock will remain more than 35% lower this year.
It is a major problem for the company and its investors to get permission to take off the company's flagship MAX aircraft. Before the 737 MAX landed worldwide in March 2019 after two fatal crashes involving automated safety system failures that killed 346 people, the 737 MAX was Boeing's best-selling aircraft.
On Wednesday, the FAA ordered the Chicago-based aviation giant to resume delivery of the planes to airlines and release the planes to carry passengers, pending the completion of certain mandatory solutions and additional training requirements for pilots. US carriers said last week that they would broadly reintroduce the MAX into their schedules from early next year, while FAA chief Steve Dickson said he expected approval from a number of foreign regulators within days.
Boeing stock has gradually gained ground over the past six months in the hope that the MAX resumption will eventually come. With Boeing appearing to be getting on track after two long and painful years, the main focus is shifting to the company's turnaround amid the COVID-19 pandemic.
Damaged Cash Flows
The MAX disaster and pandemic travel bans have damaged Boeing's cash flows and future revenue potential. To solve that will be a long, hard battle.
Even if the MAX jet obtains all the global approvals necessary to resume flying, its contribution to Boeing's cash flow is highly dependent on the aerospace industry's ability to resume normal operations after the pandemic.
An important indicator worth keeping a close eye on is how quickly Boeing is able to clear its unsold inventory of the jets, where most of the company's cash flow is currently stuck. In the US, inventories rose to nearly $ 87 billion, accounting for the MAX in storage and a recent accumulation of undelivered 787 Dreamliners.
Chief Executive Officer Dave Calhoun and Chief Financial Officer Greg Smith told investors last month that the company was facing a shrinking market that is likely to remain depressed for years to come. Given the uncertain market conditions, Boeing does not expect to be cash flow positive until 2022, a delay of a year longer than the company's previous forecast.
But Boeing's bulls have turned their eyes to the post-pandemic recovery in air travel, the outlook of which has improved following the breakthroughs of the coronavirus vaccine this month. According to CEO Calhoun, if a COVID-19 vaccine is widely available by the middle of next year, it could help bypass Boeing's crises, which could lead to a & # 39; shore flight & # 39; for narrow-body aircraft. He further assured the markets, "It will be the response when the recovery really comes," he said in a Wall Street Journal interview last month.
Bottom Line
In the short term, Boeing stock reflects recent positive headlines, including the possible resumption of MAX flights. But getting the plane ready for take-off doesn't mean it will be business as usual anytime soon.
Boeing will have to adapt to the new market reality where air travel takes some time to recover while maintaining the aviation market. depressed. Despite this tough business environment, Boeing is a great long-term purchase even after this recent rally. Boeing's stock will no doubt increase once the MAX is fully operational and the pandemic is over.
