For many investors, Boeing (NYSE: BA
) will always be the one that got away. When equity markets were awash with volatility in February and March of last year, Boeing shares fell more than 70% in less than a month as the market priced in doomsday scenarios that forecasted air travel would grind to a halt indefinitely. In hindsight, the US government was likely never going to let one of their key defense contractors go bust and for those that were brave enough to pick up shares when they were trading in the double digits, the reward has been mighty
The 180% that Boeing shares have tacked on since then is testament to that, but with there still a ways to go before they’re at pre-pandemic levels, there’s still some opportunity on offer
for those of us who missed the first leg of the recovery.
On Tuesday, Cowen came out with an upgrade to shares on this basis, as they moved them from Market Perform to Outperform. They cited the "fast-improving air traffic which is bolstering aircraft demand" as a key reason for this bump and their fresh price target of $290. This implies a short-term upside in Boeing shares of around 15% and you’d be hard-pressed to bet against them hitting it and pushing on from there in the coming weeks.
As the US hits a 50% vaccination rate, with Europe and China hot on its heels, it’s looking more and more likely that air traffic numbers will be ahead of their pre-pandemic levels within 18 months. Cowen's Cai von Rumohr sees this underpinning continued strength in the shares of the major airlines. Indeed, a look at the performance of shares from the likes of American Airlines (NASDAQ: AAL), United Airlines (NASDAQ: UAL), and Southwest (NYSE: LUV) confirms this thesis is well underway to being played out. American is up 200% since the lows of last year, United is up 230%, and Southwest is up 170%. Of note, the latter is already trading above its pre-pandemic levels.
Cowen sees this industry strength inevitably filtering through to increased order numbers for Boeing. They also see improving cost economics of new planes, low-interest rates, and lower carbon emissions improving Boeing’s profitability profile.
Earlier this month, the folks over at Bernstein followed much the same line of thinking when they too upgraded Boeing shares and boosted their price target. In a note to clients, they said "we see less company-specific risk now that Boeing controls 787 deliveries, 77X expectations have been reset, and free cash flow estimates have been brought down (after a $3.6B Q1 loss). We still view recovery for commercial aircraft OEMs as a long process, given a mixed global recovery path, amount of excess capacity in the market and performance challenges facing many airlines.”
Fundamentals Lining Up
These are solid calls to have from the Wall Street heavyweights, but fundamentally there’s a lot to like too. Just over a month ago the company’s Q1 earnings painted a bright picture as they lapped last year’s reports which were affected by the pandemic for the first time. Revenue was only down 10% on the year while Boeing’s order backlog grew. Their 737 MAX plane has been once again approved for service and already the majors are lining up their orders.
Technically, there’s also a lot to like. Shares have been setting higher highs and higher lows since the last quarter of 2020 which shows us just how in control the bulls are. The stock’s MACD had a bullish crossover last week which signaled the end of a short bout of equity softness, and the RSI is trending up towards 70, which also tells us there’s some impressive momentum to be seen on the bid.
While there’s some ground to be covered before they’re back above $300, that’s where the stock clearly wants to be and the factors are there for it to happen. If Boeing can navigate the rest of 2021 without any major setbacks and if the global vaccine rollout continues as planned, we should be seeing it before too long.
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