Boeing stock took another hit as news of a quality problem in the supply chain for the 737 MAX jet emerged. Despite this setback, Wall Street remains positive about the company’s outlook.
Investors have had to weather a storm with the MAX. Following two deadly crashes within a short period, the plane was grounded worldwide from March 2019 to November 2020. Since its reintroduction to service, the MAX has operated without incident. However, Boeing (ticker: BA) continues to grapple with industrywide supply-chain challenges that are limiting production.
On Wednesday evening, Boeing supplier Spirit AeroSystems Holdings (SPR) informed the public about a discrepancy in the fastener holes on 737 aft pressure bulkheads. Spirit AeroSystems addressed the issue by implementing changes in its manufacturing process.
Fortunately, these production issues are not expected to impact deliveries to Boeing. As a result, Boeing should still be able to achieve its target of delivering 400 to 450 MAX jets in 2023. Despite this reassurance, the stock experienced a 5% decline. On Friday morning, shares were down by 0.3%. Meanwhile, the S&P 500 and Dow Jones Industrial Average both saw an approximate 0.3% increase.
Seaport analyst Richard Safran views the series of problems faced by the MAX as an unfortunate turn of events. In his research report, he humorously pondered if locusts and boils would be next. Nonetheless, Safran remains optimistic about Boeing’s future, believing that these issues do not significantly impact the investment outlook for Boeing shareholders.
A Positive Outlook for Boeing Stock
Investors are turning their attention to the future when it comes to Boeing stock. With a focus on earnings and free cash flow projected for 2025, the company’s challenges in 2023 are seen as temporary setbacks. Safran, a leading aerospace company, rates Boeing shares as a “Buy” with a price target of $246.
Analysts on Wall Street are optimistic about Boeing’s potential, expecting the company to earn over $9 per share in 2025 and generate more than $10 billion in free cash flow. While a loss of $2.45 per share is anticipated for 2023, positive free cash flow of approximately $4 billion should offset this setback.
The sentiment surrounding Boeing stock has improved recently, with approximately 64% of analysts now recommending it as a “Buy,” compared to around 62% six months ago. This is higher than the average “Buy” rating ratio for stocks in the S&P 500, which stands at about 55%.
The average price target assigned by analysts has also increased from $234 to approximately $259 per share.
Boeing’s ongoing recovery from previous issues, particularly related to the MAX aircraft problems, coupled with the overall rebound of the commercial aerospace industry post-Covid-19, are the primary driving factors behind this positive outlook.
Recent data shows that global domestic air traffic in June 2023 is up by around 5% compared to June 2019 levels. Although international air travel remains about 10% below 2019 figures, there has been a significant increase in international air travel during the first half of 2023, with a nearly 60% growth compared to the same period in 2022.
In conclusion, analysts and investors are feeling more optimistic about Boeing stock as it emerges from past challenges and benefits from the recovery in the aerospace industry.