Despite its pandemic headwinds, investors have been willing to bet early on a Boeing (NYSE:BA) recovery. Cratering below $100 per share when Covid-19 first hit America, Boeing stock has since more than doubled. But, after the rebound, especially the rally seen following November’s vaccine news, shares have moved up too far, too fast.
Yes, the situation for the aerospace giant isn’t as dire as some saw it to be back in March. But, a full recovery isn’t in the cards for Boeing in 2021. Instead, it may not be until 2024 that things fully get back to the “old normal.”
And, while Boeing stock has only partially recovered (shares trade today for around $217 per share, versus around $340 per share pre-pandemic), we could see a near-term pullback, as investors realize things aren’t so rapidly “returning to normal.”
Also, it’s important to note that Covid-19 wasn’t the start of the company’s issues. If you can recall, the company’s headwinds with its 737 Max were top of mind among investors. While it’s now returning to the skies, the plane maker is still on the hook for billions due to the disruption.
Sure, 737 Max-related issues may already be priced into shares. But, with investors already factoring-in a rapid vaccine-driven recovery in 2021, further gains from here may be limited in the near-term. Skip on it for now, but consider giving it a second look on any pullback.
Boeing Stock: 2021 Recovery vs. 2024 Recovery
It’s easy to follow the bull case for Boeing. It mainly hinges on a vaccine-fueled recovery in 2021. However, per statements from management and sell-side analysts, optimism over a rapid rebound could be wishful thinking.
How so? In mid-December, CEO Dave Calhoun stated that a broad recovery for Boeing could be at least three years away. Credit Suisse’s Robert Spingarn takes a similar view. Cautious on the rebound, the analyst gives shares a “hold” rating, and a $174 per share price target.
Like Calhoun, Spingarn sees 2024, not 2021, as the company’s “return to normal” year. Simply put, investors have put the cart before the horse. Boeing’s stock price today implies a recovery happens sooner than anticipated. Sure, a partially recovery makes sense, given things are moving in the right direction.
But, with so many putting their hopes into vaccines saving the aviation industry in 2021, shares could pull back big time if expectations fail to play out. That’s not to say shares retest prior lows. However, those buying today, in the hopes shares soar back to $300 per share by the summer, are more likely than not to be disappointed.
737 Max Factor, and Why A Recovery’s Fully Priced-In
Recent news of Boeing’s grounded 737 Max returning to the skies is another reason investors have been optimistic on shares as of late. But, while the recent news does indicate the company can soon close the books on this tragic chapter, the company isn’t out of the woods just yet.
As this Seeking Alpha contributor recently detailed, Boeing is still on the hook for billions related to planes not delivered due to the grounding. Yes, much of this was already factored into shares, even before the pandemic.
However, it’s yet another issue for Boeing to resolve, as it continues to deal with the pandemic’s overall disruption to the commercial aircraft industry. Despite this and the larger Covid-19 related headwinds, investors have been willing to cut the company some slack.
What do I mean? Not only have shares recovered well ahead of when the company gets back to profitability (estimated to be 2022). Based on today’s share price, Boeing stock trades for 29.2x consensus estimates for earnings in that year ($7.40 per share).
Looking further ahead into the future, Boeing right now trades for 20.6x estimated 2024 earnings of $10.51 per share. For context, the stock’s historical price-to-earnings (P/E) ratio has been between 15x and 20x.
In short, you can argue that investors have priced-in fully the company’s multi-year recovery. Again, that doesn’t mean shares will tumble from today’s prices. But, it could mean the stock fails to head higher, and instead treads water, as it grows into its valuation.
With Long-Term Recovery Priced-In, Sit Tight for Now
The problem with Boeing isn’t that a recovery is not in motion. The issue is that a full rebound is many years away. Not only that, today’s valuation more than prices-in where things could stand three years from now.
As I said above, that doesn’t signal that shares are ripe for a big fall. But, if investors realize there isn’t much of a pathway to $300 per share in the near-term, some may head for the exits. However, any sort of slight sell-off may create a solid buying opportunity.
Until then, the best move with Boeing stock is to hold off. Wait for a pullback before buying.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
