Canaccord Genuity analyst Ken Herbert has “dusted off” his commercial aerospace models in the wake of Covid-19. And even though Boeing stock is down, a lot, year to date and even more from all-time highs, Herbert doesn’t think it’s an opportunity for deep value investors yet.
Herbert rates Boeing (ticker: BA) shares the equivalent of Hold, and cut his target price for Boeing shares from $175 to $155 in a research report published Thursday evening. He is looking for a better entry point for the stock.
“One of the most common questions we get today is when will we get more optimistic on [Boeing] and commercial [aerospace] suppliers,” wrote Herbert. He isn’t ready to pull the trigger and upgrade the stock yet, and wants to wait to see how commercial air travel recovers.
Covid-19, of course, has decimated the commercial aviation industry. The majority of the global airplane fleet is parked. The number of people flying commercially in the U.S. fell more than 90% year over year in April, and industry insiders and Wall Street analysts don’t expect travel to hit 2019 levels again for years.
To judge the recovery, Herbert wants to see airlines start to order planes again, which would signal airlines’ confidence in a travel recovery. But will so many planes already on order, that could take a long time to come to fruition.
Herbert also wants to see Boeing cut production rates again, believing current plans are too optimistic for a Covid-19 world. Boeing did outline lower production plans for the next few years, but the level of aircraft demand in coming years is difficult to pin down.
All this uncertainty is seen in Wall Street’s overall view of Boeing stock. Fewer than half of analysts covering the company rate shares the equivalent of Buy. The average buy-rating ratio for stocks in the Dow Jones Industrial Average is about 55%.
There are still some bulls. Earlier in the week, RBC analyst Michael Eisen launched coverage of Boeing with a Buy rating. He, too, believes things for commercial aerospace is uncertain, but is focusing on the rate of change. Eisen is betting, in part, investors will feel better about the sector when people begin to fly again. He isn’t as worried about when traffic will hit 2019 levels again.
In the end, the shape of an aerospace recovery, and the future of Boeing stock, will remain hotly debated on Wall Street.
Beoing shares are down 1.1% in Friday trading. The S&P 500, for comparison, is down 0.3%.
Boeing stock, these days, trades with aviation news. Aviation stocks, in turn, are highly attuned to vaccine news. Boeing stock was up 14% for the week, as of Thursday’s closing price. Stock in airlines, Boeing’s key customers, rose 22% as of Thursday’s closing price. Moderna (MRNA), maker of new, high-tech RNA vaccines, jumped more than 20% Monday after announcing some positive trial data.
Gains for Moderna shares were short-lived, but that stock is still up 242% year to date. Vaccine news has helped the most beaten-up market sectors in recent days. The S&P was up almost 3% week to date as of Thursday’s closing price. Casino and gaming stocks, another hard-hit sector, rose almost 10% over the same span.
