It has been quite a month for investors who keep a close eye on the stock of troubled Boeing (NYSE :). The Chicago-based aviation and defense giant's shares have risen about 80% in the past month, reaching their lowest level since 2013, at $ 95.01 during the March crash.
Shares rose 12% to $ 230.50 on Monday, their sixth consecutive winning session, a period of over 50%.
The furious rally comes despite the fact that this industrial conglomerate continues to face many daunting challenges. Boeing must breathe new life into the demand for its aircraft, which has dried up completely due to the COVID-19 pandemic. The company also needs to manage its massive debt burden and get legal approval for its grounded 737 MAX jetliner after last year's two fatalities.
Right now, investors have chosen to ignore these issues, instead focusing on economic reopening – currently so powerful that it hit a new all-time high on Monday, taking all the losses suffered during the start of the coronavirus health crises have been cleared. Since the benchmark bottomed out in March, each of the listed stocks has now posted positive returns.
Airline Industry Buy Signal
For Boeing, the largest buy signal comes from the airline industry, which sees travelers returning faster than expected.
American Airlines (NASDAQ 🙂 said last week that it would increase flights in July by 74% from June. The busiest days next month will have about 4,000 flights, down from 2,300 currently. The July figure corresponds to 40% of capacity a year earlier, compared to 30% in June, the airline announced Thursday. Capacity was even lower in May, following the devastating collapse of travel due to the COVID-19 pandemic.
Boeing has also benefited from some bullish calls from Wall Street analysts. Over the weekend, Goldman Sachs raised their Boeing price target from $ 209 to $ 238 per share, saying that airlines didn't cut their aircraft delivery plans as much as the market expected.
And on Monday, brokerage firm Seaport Global Securities began publishing research on Boeing, which recommended that investors buy it, giving it a price target of $ 277 per share. "Without a new Covid-19 wave, we think the worst will now be priced in," Seaport said in a Wall Street Journal report.
Uncertainties persist
In the midst of all the optimism, however, many uncertainties could sputter this rally. In the case of Boeing, this has happened repeatedly during the company-specific crisis since the two fatalities involving the MAX jetliner last year.
Boeing stopped work on the MAX at its Seattle plant in January, unsure as to when regulators would lift the base for the popular model in March 2019. The global flight ban had already damaged the sale of Boeing's best-selling jet. and tarnished the reputation of the company.
As a way to deal with both crises, Boeing told investors in late April that, as part of its survival plan, it would cut thousands of jobs and create more debt. The company had already suspended its dividend and canceled a planned deal with Brazilian aircraft manufacturer Embraer SA (NYSE 🙂 that would cost $ 4.2 billion.
Another big unknown: if the economy recovers quickly, people will feel safe enough to fly again in the coming months. Current airline predictions may be too optimistic as a second wave of the virus spike, and governments are in the process of resetting a version of lockdowns in response.
Consensus forecasts compiled by data provider FactSet show that combined revenues from and (PA 🙂 are not expected to exceed their 2018 levels until 2023. That year sales would still be 7% lower than what analysts expected a few months ago in 2020.
Bottom Line
The rapid recovery of Boeing shares shows investors are becoming more and more hopeful about the revival of the aviation industry after some positive economic data. But whether that bullish scenario will be enough to improve Boeing sales is not certain, especially when almost every airline around the world is faced with a cash crunch. And of course, the world is still dealing with the coronavirus, which is still not overcome.
