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Boeing (NYSE:BA) Soars Higher on Positive 737 News

Posted on Monday, November 11th, 2019 by Chris Markoch

On a day when the market volume is typically light, a bit of good news can allow one stock to have a huge effect on an entire index. That was the case on Veteran’s Day when Boeing (NYSE:BA) stock rose nearly 5%. This was largely responsible for lifting the New York Stock Exchange (NYSE) into positive territory as the trading day was winding down.

As of 4:00 EST, the NYSE was just climbing into positive territory with a gain of slightly less than one-tenth of a percent.

So what lifted Boeing today?

Two announcements (one from Boeing and one from an independent panel) has raised optimism that Boeing will be able to continue manufacturing its 737 MAX plane.

First, a panel of aviation experts from the FAA’s multi-agency Technical Advisory Board (TAB) brought together by the FDA announced that the software changes Boeing presented regarding the 737 MAX are safe. The TAB has been working since May to review the company’s intended fixes. A software glitch has been cited as the key factor in two separate 737 MAX crashes that claimed the lives of 346 passengers and crew.

“The TAB presented its preliminary report to the FAA, detailing their finding that the MCAS design changes are compliant with regulations and safe,” according to a summary for lawmakers referenced in the report.

However, the announcement does not mean the company can immediately start manufacturing planes. TAB said that there are some items that Boeing will still have to complete and get cleared by the FAA before the MAX returns.

In a separate announcement on November 11, Boeing said that the company expects the FAA to lift the grounding in mid-December which could mean manufacturing at Boeing’s Wichita plant could commence. Such a schedule could allow for the company to start clearing the backlog of deliveries to its airline customers by the end of the year.

Additionally, Boeing announced that it expects the MAX to resume actual commercial service in January upon approval of additional pilot training.

"Those two things (the ungrounding and training approval) mean the plane can return to commercial service, however, we know that our airline customers will need more time to return their fleets to service and to train all 737 pilots, therefore they have announced schedule updates into March," the company said Monday.

What does this mean for Boeing investors?

Boeing’s embattled CEO Dennis Muilenburg had commented that if the production of the 737 MAX was to slip “too far” after the company’s fourth-quarter target, it could result in the company having to either decreased production or call a temporary halt to the program.

Boeing is trying to regain investors trust

Even with the lift that BA stock received with the announcement from TAB, the stock is still trading down nearly 16% since it reached a 2019 peak on March 1.

Part of the problem for the company has been that they have had the nasty habit of overpromising and under-delivering. The most recent example came when the company vehemently pled innocence to any prior knowledge of potential software problems with the 737 MAX.

However, shortly before Muilenberg was to testify in front of House and Senate subcommittees, news broke that detailed the company had knowledge of the potential for problems. Not surprisingly, analysts soured on the stock.

This news can be an important first step for Boeing to rebuild trust within the analyst/investor community.

Where does Boeing stock go from here?

If the timelines hold and Boeing can get planes delivered, the stock has a nice runway (no pun intended) to go higher. As noted above, the stock is down about 16% from its 2019 high. That would seem to be a good starting point for ROI with investors.

Of course, all that depends on no further slip-ups. If the timelines are delayed, or if Boeing is perceived to be cutting corners in any way, then the stock could slip again. And the fate of CEO Muilenberg is still to be determined. At the time of the Congressional hearings, the CEO said that his fate was in the hands of Boeing’s board. If that’s true, investors will be watching to see if he’s removed. And, if so, who will his replacement be. Markets hate uncertainty and that would leave Boeing with a power vacuum at a critical juncture in the company’s history.

Separate the Boeing story from the stock

However, sometimes it’s important for investors to separate the story from the stock. For the most part, investors have seemed to do that. Despite all the bad news, Boeing stock has stayed relatively stable. It is still up year-to-date and it offers a dividend of around 2.24%. Boeing is a dividend aristocrat, having provided increases to its dividend since 1970.

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Boeing (BA)$350.35+1.4%2.35%21.88Hold$383.22

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