After two disastrous years, Boeing (NYSE:) is slowly regaining ground. Shares of the crisis-stricken aviation giant have nearly tripled since the pandemic-induced crash in March last year.
Boeing's gradual rebound is accompanied by a broad rally in other cyclical stocks – including airlines, cruise lines and retailers – as investors put their money in areas closely linked to economic reopening as coronavirus restrictions are lifted .
The stock closed Wednesday at $249.05, up 18% this year. Boeing is still well below its March 2019 peak, when it passed $444 before the 737 MAX crisis.
Boeing Weekly Chart.
As the air traffic recovery continues at a rapid pace, investors feel more comfortable keeping the Chicago-based aircraft maker in their portfolios. The biggest buying signal comes from air traffic.
During Memorial Day weekend, U.S. airports — from Los Angeles to Houston and Atlanta — reached passenger levels not seen since early March 2020. The number of passengers passing through airport checkpoints across the country on May 28 rose to 2 million for the first time since the weeks before flights were grounded last year, according to data from the Transportation Security Administration.
Boeing previously forecast a return of passenger traffic to pre-pandemic levels in 2023 or 2024, but Chief Executive Officer David Calhoun said last week the recovery is "more vigorous than I ever imagined."
]Boeing's massive cash burn
Amid this optimism, however, investors should not overlook that the company is on a long road to recovery after a major financial blow from the faulty planes and the pandemic. Boeing has burned about $30 billion in cash since regulators grounded the best-selling MAX 737 in March 2019, after two crashes that killed 346 people.
The money spent, according to Bloomberg estimates, is about double what it would cost to build an aircraft from scratch. Executives expect cash performance to improve as the year progresses, but they don't predict breakeven until 2022.
Despite this bleak financial picture, some analysts believe that Boeing will eventually emerge from this crisis, and that now is a good time for long-term investors to own its stock.
Cowen analyst Cai von Rumohr, as he upgraded Boeing to outperform market performance, said in a note to customers last week that the recovery in travel demand creates an advantage for the aerospace giant.
“Rapidly improving air traffic drives demand for aircraft; and while FAA oversight and timing of China's MAX approval limit continues upward through 2021, 2022-24 look better."
Cowen raised his price target for Boeing to $290 a share from $240, representing a 16% increase above where the stock closed Wednesday.
During Boeing, Boeing recorded 76 orders with no cancellations, well ahead of its European rival Airbus Group (OTC:), which had 61 more cancellations than orders. Boeing's count included a high-profile deal for 100 737 MAX jets with Southwest Airlines (NYSE:) that will help restore confidence in the beleaguered aircraft.
Despite this bullish activity in BA stocks, the analyst community in general isn't seeing too much benefit from this as the airline industry continues to face many challenges to fully recover from the global travel plunge. Of the 14 analysts studying the stock, six still have a "hold" rating with a consensus price target for 12 months of about $275 per share.
Starting point
BA stock is gaining momentum as the economy reopens and airlines try to add more aircraft to their fleet. Given the company's strategic importance to the economy and defense sector, its stock remains a good long-term bet, even after a gradual recovery from the past year.
