Shares of Boeing (NYSE:BA) crashed and burned in the wake of the 737-MAX disaster and the pandemic, tumbling more than 30 percent in 2020. Though Boeing stock has rebounded in the past three months, the time isn’t right for investors to pull the trigger given the vast challenges that lie ahead for the aerospace giant.
BA has addressed the 737-MAX’s safety issues that led to two fatal crashes and resulted in the Chicago-based company paying a $2.5 billion penalty for misleading U.S. regulators. Though airlines can now fly the jetliner, the scandal’s impact will weigh down Boeing stock for years.
Boeing is currently trading about 5% below the average 52-week price target of $222.50 for Wall Street analysts. Forecasts vary widely, with a high of $306 and a low of $150. I don’t see any reason to buy now. The company is juggling too many issues.
Dave Calhoun and Boeing Stock
However, I am not ready to throw in the yet on Boeing because Chief Executive Dave Calhoun has turned around companies like Caterpillar (NYSE:CAT), Nielsen (NYSE:NLSN), and General Electric’s (NYSE:GE) Aviation business in the wake of the 9-11 terrorist attack.
Even with his track record, Calhoun has his work cut out for him, like any CEO.
Aviation analyst Richard Aboulafia estimates that 387 737-MAX’s are waiting to return to service, and 450 already built 737-MAX’s are awaiting delivery. Boeing won’t need to build new versions of the jet for years.
“Boeing needs to re-start production at some low level,” Aboulafia told Reuters. “But they won’t get above 20 per month for at least two years, and they won’t get to where they wanted to be – over 50 per month -until the middle of the decade.”
However, carriers are slowly introducing the 737-MAX back into service. Consumers who don’t feel comfortable traveling on the plane can switch flights at no charge.
Boeing Will Struggle for a While
Boeing deliveries fell 59 percent in 2020 to 157 compared with 380 deliveries a year earlier. Airbus delivered 566 in 2020, a 3o percent decline.
According to an Aviation Week forecast, business will rebound for Boeing and Airbus in 2021 with 558 and 610 deliveries, respectively. However, the airlines who buy the jets face a tough slog even with the expected post-pandemic travel boom.
“Our analysis continues to demonstrate the lack of recovery in global airline traffic sufficient to support demand for current production rates,” Agency Partners analyst Sash Tusa wrote in a client note quoted by Aviation Week.
Indeed, because of the uncertainties around the pandemic. UAL CEO Scott Kirby tried to strike an optimistic note, saying: “The turning point is coming, and while our base case is that the turning point is coming a little bit later than maybe some others think, that turning point is coming, and it’s going to come at the same time for all airlines.”
United got hammered Thursday when the carrier gave a weaker-than-expected outlook because it wasn’t sure when the pandemic slump in travel will rebound. The slower-than-expected rollout of the vaccine isn’t helping matters either. People aren’t going to recover from the worst health crisis trauma in more than a century for a while.
Then there are Boeing’s other issues, like the problems with the company’s 787-Dreamliners. The company limited deliveries of the aircraft in the quarter while conducting “comprehensive inspections” to ensure quality and safety standards are being met.
Space, The Final Frontier
According to a recent Wall Street Journal story, Boeing’s Space division, which the company had hoped would take up the slack caused by the decline in its Boeing Commercial Airplane business, has got plenty of problems of its own.
“Faulty designs, software errors have dogged the company’s biggest space initiatives, and chronic cost overruns,” The Journal says. “It has lost out on recent contracts with the National Aeronautics and Space Administration to return science experiments and astronauts to the moon, amid low rankings on price and technical merit.”
For now, the jury is still out on whether Calhoun or anyone else can turn around a company with problems as vast and complex as Boeing. I will wait for more evidence of improvement before buying Boeing stock.
On the date of publication, Jonathan Berr did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.