Shares of downed aviation giant Boeing (NYSE 🙂 are showing some signs of life recently.
Over the past three trading sessions, the stock has risen by about 8%, contributing to the 66% increase since the dip in March. Shares closed at $ 166.08 on Monday, more than 6.4% more than the previous close. Despite this acceleration, the stock is still over 55% lower this year.
Boeing 1 Year Pass.
Given this short-term recovery, the most important question for long-term investors is whether the worst is over for this Chicago-based aircraft and aerospace manufacturer? If so, would this be the right time to start a position in the world's second largest aircraft manufacturer, even if it still faces a host of issues?
The latest news suggests that Boeing is getting closer to obtaining the final approval needed to return its best-selling 737 MAX to service. The plane was grounded worldwide in March last year after two fatal accidents involving failures in the automated safety system, killing 346 people.
The US Federal Aviation Administration and the other three leading aviation regulators elsewhere in the world completed reviews of new pilot training requirements for the MAX last week. This week, the FAA chief plans to test the plane after it has been updated with a number of fixes the agency suggested, Bloomberg reported, citing a message sent to Congress.
Encouraged by these developments, Goldman Sachs added Boeing to its "Conviction Buy" list, with the investment company listing a number of potential catalysts.
"Boeing stocks are out of the lows, but have underperformed in recent weeks (, and [aerospace and defense]), despite the market turning to other value stocks as a result of economic reopenings," said the investment bank.
“From here, further positive second derivatives [effects] in air travel and the aircraft order book, plus positive developments on the 737 MAX, can act as positive catalysts in the short term. Both have the potential to make more meaningful progress in the coming months than in recent months. "
The Biggest Risk
Despite these positive developments in the MAX resurgence, the biggest risk remains the raging pandemic, which continues to hinder the resumption of normal air travel.
A scenario in which the world fails to find a cure or treatment for the deadly coronavirus could soon force many airlines into bankruptcy, defaulting on any commitment to buy Boeing aircraft. According to the International Air Transport Association, it can take five years to convince travelers that flying is safe.
Boeing has been hit hard by the air travel collapse, with a net-minus-615 orders for its aground 737 MAX jet this year due to cancellations. The company is more focused on wide-body models used on international routes, a segment that is expected to take even longer to repair.
Chief Executive Officer Dave Calhoun and Chief Financial Officer Greg Smith warned in July that the company was facing a shrinking market that is likely to remain depressed for years to come. According to an estimate by Melius Research analyst Carter Copeland, the company could see a staggering $ 23.3 billion in cash flow this year, before the resumption of MAX deliveries begins to fill the company's coffers in 2021.
Even if the MAX jet obtains all the approvals it needs to fly again, its contribution to Boeing's will depend heavily on the aerospace industry's ability to resume normal operations after the pandemic. The question of whether and when remains an open question at the moment.
Indeed, Boeing's stock has burned many investors over the past year after it emerged that the company was back on track to recovery – only to be hit by additional negative surprises.
As such, analysts on the streets are divided about the future of the aviation giant. Of the 25 analysts researching the stock, 14 have given it a buy rating, while 11 recommend selling. The average 12-month price target for Boeing stock is approximately $ 176.
Bottom Line
The strength of Boeing's stock during recent sessions reflects the potential resumption of MAX flights, signs of air traffic recovery and the company's access to liquidity. In view of these positive developments, investors with a long investment horizon may consider taking a position in this stock.
But any meaningful gain could come in the next three to five years. As such, patience is key in this trade.
