Stock in commercial aerospace giant Boeing fell after Wolfe Research analyst Hunter Keay downgraded it to Sell Thursday morning. He sees too much risk related to the 737 MAX as well as Covid-19.
Keay isn’t alone in his concern. Overall, Wall Street isn’t sure what to do with Boeing shares (ticker: BA). Only 10 of the 28 analysts covering the company rate shares the equivalent of Buy. That’s about 35%, below the average 55% Buy-rating ratio for stocks in the Dow Jones Industrial Average.
What’s more, four analysts rate shares Sell, or about 14% of all the analysts covering the company, more than twice the average Sell-rating percentage for Dow stocks.
The reasons for the angst are obvious: the pandemic and the 737 MAX. The MAX has been grounded worldwide since mid-2019 following two deadly crashes inside of five months. Covid-19 has decimated demand for air travel.
The pandemic and the MAX are both are prominent in Keay’s downgrade. He is worried about increasing MAX cancellations as well as demand for very profitable, wide-body twin-aisle aircraft such as the 777 and 787 model jets.
Boeing has already seen about 300 MAX cancellations in 2020. There are still more than 4,000 orders in backlog. Many of the current cancellations are due, in part, to the pandemic. Airlines just don’t need more planes right now. In that way, Covid-19 is a bigger deal than MAX woes. U.S. demand for commercial air travel fell about 80% year over year in June. The declines are unprecedented in the history of the commercial aerospace industry.
Keay’s price target is now $149, below where the stock is trading. The average analyst price target is about $185 a share. Boeing stock fell 4.9% on Thursday to $178.70. The S&P 500 dropped 0.3%.
Year to date, shares are getting crushed, down about 45%. That’s far worse than the comparable returns of the Dow and S&P 500 over the same span, but similar to declines of other aerospace supplier stocks and airline shares.