Boeing Stock Is Flying the Friendly Skies Without a Map

Advertisement

Some companies have a fundamental case so poor that they’ve completely dropped off investors’ radar. While you can’t totally ignore a giant of industry like Boeing (NYSE:BA), it’s fair to say that there was some of that aforementioned dynamic going on. With virtually every link in the commercial airliner supply chain under duress, Boeing stock simply didn’t appeal to many people.

image of a Boeing (BA) 737 max aircraft
Source: Marco Menezes / Shutterstock.com

To be sure, BA was a complete disaster. After briefly trading below three digits in March of last year, Boeing stock technically has made a strong comeback. On its first day of trading of the new year, shares fell more than 5%, which understandably isn’t encouraging. However, at a nominal closing price of nearly $203, March speculators more than doubled their money.

But it’s really anyone’s guess as to when the airline industry will recover convincingly to support any kind of sustained bullishness in Boeing stock. According to Barron’s Al Root, “Boeing’s total market value – equity and debt – still sits about $45 billion below where it was at the end of 2019.”

Therefore, “with vaccines rolling out and [Boeing’s embattled jetliner] MAX back, investors need to ask themselves how much of the combined MAX and Covid declines, totaling $85 billion, will come back in 2021.”

Unfortunately, as Root noted, many analysts have written off the new year as the recovery period. Instead, some analysts are looking to 2023 and 2024 as the possible turning point.

For investors watching from the sidelines, that might seem too pessimistic of a target. First, we have a new administration that will take over, and perhaps with full control of Congress. That could help in beating out Washington gridlock and perhaps inject much-needed stimulus to the American people.

Second, we have the novel coronavirus vaccines that are rolling out from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA), and more are on the way. Thus, some of the more recent fundamentals suggest a risk in Boeing stock is appropriate.

Why Caution May Still Be Warranted for Boeing Stock

Of course, there’s always two sides to every story. And the prevailing one for Boeing stock comes down to consumer confidence relative to the pandemic. If people aren’t willing to fly like they used to in the pre-pandemic era, it’s difficult to support BA’s bullish proposition.

However, depending on your point of view, Boeing stock may be tempting. During the month of April last year, air travel demand in the U.S. was less than 5% of what it was in April of 2019. But quickly, travelers came back, substantially boosting the recovery growth rate. Further, on Dec. 23, passenger volume was 61.5% that of the prior year’s level, the biggest such statistic since mid-March.

This proves the concept of pent-up demand, that at a certain point, fear will not get in the way of the American consumer. As well, the holiday spirit proved more than resilient, suggesting that we should rethink this indefinite lockdown mentality.

Air travel stats YOY (March to December 2020)
Source: Chart by Josh Enomoto

Still, not everything about air travel data is encouraging for Boeing stock. In particular, the recovery growth rate appears to have petered out. There was very little progress in year-over-year demand improvement between October (down 35.6%) and November (down 37.1%). Moreover, there was virtually no change between November and December (down 37.6%).

With the holiday season over, it would appear demand will be mediocre in January and February. March and April may see an uptick in terms of year-over-year comparisons, but that might be it for good news. Obviously, if we see substantive improvements in novel coronavirus cases, that’s something to keep in mind.

But if the pandemic worsens, the analysts that Barron’s cited could be right: the air travel industry might not normalize until two or three years from now.

Other Travel Stats Suggest Prudence

As I’ve mentioned in other InvestorPlace articles, you don’t want to focus all your attention on a single data set. However, that’s what keeps me on the sidelines regarding Boeing stock: other forms of transportation are signaling caution.

Primarily, public transit trips have plummeted in the wake of the Covid-19 crisis. Further, people are just not leaving their homes like they used to before the pandemic. And overall trip distances have declined in frequency.

Granted, this is a complex equation involving government-mandated shutdowns and the severe economic toll. However, at least a substantial component of the trip declines is due to fears of contracting Covid-19. And that’s probably going to worsen as we figure out how to tackle the new strain of the SARS-CoV-2 virus.

Now, I’m not going to tell you what to do with your money. However, with Boeing stock, it appears the variables – the pandemic, the economy, the health of the target industry, and consumer fears among other headwinds – are more numerous than the available high-confidence bullish arguments.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/boeing-stock-flying-without-map/.

©2024 InvestorPlace Media, LLC