Stocks not taking off (more like coming in for a landing)

  • The air transportation market is in the process of recovery; we expect air traffic to regain pre-COVID-19 level by 2024.
  • Due to problems with existing aircraft models, Boeing is incurring abnormal costs that are putting pressure on the company’s margins.
  • Delays in FAA approvals and aircraft deliveries put additional pressure on the company’s quotes.
  • Despite good upside in the medium term and a significant quotes decline in May, we change our recommendation on the stock from SELL to HOLD

The post-pandemic recovery of air travel and international tourism demand provides good earning opportunities for companies hit hard in 2020, and The Boeing Company (NYSE:BA) is one of them. However, the broad economy is not the only thing to shape Boeing’s valuation. Despite the opportunities, the company is still not making money due to production line stoppages and delayed shipments.

In the previous article, we highlighted Boeing’s questionable short-term outlook, and our expectations of the stock’s performance have been borne out. After the recent collapse of Boeing’s Q1 2022 financials, Boeing’s quotes have dropped, and, according to our calculations, the stock is now trading at its fair levels.

Boeing stock is still far from the entry point due to several factors. The main issue is uncertainty about the 777x model, whose sales have been moved from 2023 to 2025. It is also possible that Boeing will start to attract debt or dilute the stock again because of the company’s unprofitability.

The air travel market keeps its recovery to pre-pandemic levels. Despite the COVID-19 outbreak in China, which had a significant impact on air travel in Q1 2022, we do not revise our outlook assuming full market recovery by 2024. Boeing is a direct beneficiary of this phenomenon – airlines will increase their CapEx programs and acquire aircraft into their fleets to meet growing demand, so as the broad airline market grows, Boeing could significantly improve its performance in Commercial Airplanes and Global Services segments.

Global air traffic

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