The tug of war between the bulls and the bears of Boeing Co. (NYSE 🙂 persists. While the company continues to struggle with the impact of two fatal 737 MAX crashes within five months, bullish investors are betting on a quick recovery of these flattened shares.
There are 18 buy ratings on the most valuable industrial stocks, far exceeding the nine hold and two sell recommendations. The average price target for the next 12 months is $ 429, which means an upside potential of 20% of the current price of $ 354.88. However, it has fallen by 1.5% in the past year and the slide seems to be accelerating: shares have fallen 6.8% in the past month.
But the big question for investors who want to take advantage of this financial situation is whether Boeing has seen the worst crisis ever forcing the aircraft manufacturer to base his best-selling model worldwide and drastically reduce production. However, there is no quick answer, as everything depends on closing multiple questions in different jurisdictions, Boeing's ability to quickly release the software fix and lifting a global ban on the 737 MAX.
In our opinion, this result will not soon become reality. The latest news stream suggests that it may take longer than many expected.
Bloomberg reported yesterday that European regulators assessing changes to Boeing's grounded 737 MAX will investigate the full flight control system of the jet before the aircraft can return to heaven. A report from The Wall Street Journal early this month stated that Boeing limited the role of his own test pilots in the final stages of the development of the 737 MAX flight control system
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The major concern was that pilots "did not receive detailed briefings about how fast or steep the automated system known as MCAS could knock down the nose of an aircraft," the Journal reported. And then there was a story in the New York Times in which the corporate culture was questioned and in which it was stated that it often preferred production speed over quality.
Fear of getting aboard 737 MAX
Although negative media coverage was highly anticipated when so many innocent lives were lost in the two 737 crashes, this also makes it very difficult for supervisors to do so because they do not want to be seen as hasty in investigating and giving the company is a clean slate too quickly.
In the midst of this negative press, some analysts have also begun raising the possibility that passengers will not feel comfortable boarding 737 MAX planes when global grounding is lifted.
Barclays Capital analyst David Strauss said in a recent note to reduce inventory that Wall Street underestimated the effects of the 737 MAX crashes in Indonesia and Ethiopia. He also cited an overview of pilots who show that almost half MAX or more will not fly for years or more:
"There is a risk that this time it could be worse than following incidents from the past, given the ability of social media and pilots to know the type of aircraft before booking."
The company's latest in April showed that the strong sales at Boeing's defense and services departments and an increase in production for the 787 Dreamliner mitigated to some extent the impact of the MAX grounding. But that comparison could change quickly if regulators need more than six months to finish their work and make the 737 MAX fly again.
The 737 MAX is Boeing & # 39; s largest contributor to product revenue and interest and interest income (EBIT), according to Goldman Sachs estimates, with the potential to make 45% of Boeing EBIT in the next five years .
Bottom Line
There is no doubt that Boeing will eventually return from this crisis. Airlines have no choice but to choose one from the duopoly of the aircraft manufacturer Boeing-Airbus (PA: AIR). But we are also worried that BA earnings can become a bigger hit before returning to their normal trajectory. And despite these uncertainties, BA shares are still selling at a premium valuation compared to the overall market, suggesting that there is a greater downside risk in the short term than upside potential. Staying on the sidelines is a better course of action than buying these shares now.
