Stimulus Should Keep Boeing Afloat, But This 5-Star Analyst Remains Sidelined


Just when you thought things could not get any worse for A&D giant Boeing (BA), more dispiriting news gets revealed.

Last week, Boeing reported that another 60 MAX 737 orders were cancelled in June, bringing the yearly cancellation total to 373. Boeing has an additional 439 orders that are currently considered at risk.

All in all, in the second quarter, Boeing delivered just 20 commercial aircrafts. While only 10 orders left the warehouse in June, the figure is still an improvement on the 4 delivered in May.

Boeing will report 2Q20 results on July 29, and ahead of the print, Canaccord’s 5-star analyst Ken Herbert consoles investors by stating the second quarter could be the low point for commercial orders and deliveries.

“We believe Q2 will be the trough for deliveries, but the pace of recovery now appears to be more muted than hoped for just a few months ago… Considering the importance of the MAX to BA’s FCF, we believe sentiment on the stock will be bracketed between an accommodating monetary policy, which will limit the downside, and soft fundamentals (MAX orders and deliveries), which will limit the upside. We see incremental risk to the MAX backlog and delivery schedule,” Herbert explained.

The MAX cancellations are unfortunate for Boeing, as they come at a time when the long-troubled airliner is on the cusp of returning to service. After two fatal accidents left it grounded since March 2019, re-certification is likely to be granted in September, with deliveries starting in late-3Q20. But the question is who will be taking any deliveries now that global air travel is almost nonexistent?

On the plus side, looking ahead, Herbert believes the “unprecedented level of monetary stimulus in the US” should provide enough support for now. However, given the current macro climate, the 5-star analyst warns “there is more fundamental downside for BA than is currently reflected in estimates.”

Accordingly, Herbert reiterated a Hold rating on Boeing along with a $155 price target. The figure implies possible downside of 13% in the year ahead. (To watch Herbert’s track record, click here)

Looking at the consensus breakdown, 7 Buys and Holds, each, and an additional 3 Sells add up to a Hold consensus rating. The average price target is more optimistic than Herbert’s, and at $188.73, there’s potential upside of 6% over the next 12 months. (See Boeing stock-price forecast on TipRanks)

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