Seaport Global Begins Coverage on Boeing with A “Buy” Rating

Seaport Global Begins Coverage on Boeing with A “Buy” Rating
June 10, 2020

 

The stock of Boeing Co (NYSE: BA) is once again in the limelight after Rich Safran, an analyst at Seaport Global, initiated coverage with a “buy” rating. Notably, Noah Poponak, an analyst at Goldman Sachs, also reaffirmed his “buy” rating for the stock. In the past week, Boeing shares have rallied 41%, while the S&P 500 has gained 4.9%. The stock closed at $216.81, down $13.69 or 5.94% from the prior close.

Since March 2019, Boeing’s 737Max – the latest single-aisle jet model – remains grounded following two fatal crashes in a span of five months. The Chicago, Illinois-based company has been working to resolve the issue and hopes to start delivering ordered aircraft to clients by the end of this summer.

To avoid quick burnout of funds and remain financially stable, the company is trimming 10% of its workforce and has suspended production in April before restarting with the implementation of Covid-19 negating measures. In the final week of May, the company began manufacturing 737 Max, but intends to increase production on a gradual basis. The company aims to achieve a production rate of 31 737Max aircraft per month only by next year, a figure far below the 57 aircraft it intended to manufacture in June.

737Max troubles resulted in the erosion of a $40 billion in market cap, while Covid-19 related shutdown caused a value erosion of roughly $80 billion. Of late, expectations of a global rebound in travel has aided in propelling the stock.

Poponak also believes that the market has become too pessimistic concerning anticipations for commercial aircraft manufacturing. While highlighting a rebound in air travel, analysts have pointed to a crucial disparity between aircraft manufacturers and their clients.

Goldman Sachs analysts have specifically pointed out that airline companies have not reduced taking deliveries as much as Boeing and Airbus are reducing the production of aircraft.

In a note to clients, Poponak wrote, “We are positively surprised to see these 30 customers have only revised their 2020 + 2021 plans by 17%. This is less than the production cuts Boeing & Airbus have announced. And far less than we assume the market fears.”

Poponak cited data from market survey agency Cirium which has stated that aircraft production should decrease by over 50% this year and by one-third next year, primarily due to the issue faced by Boeing 737 Max.

However, the analyst is optimistic that clients will show an increase in interest to purchase 737 Max in the future.

Poponak said, “All that said, we think this model as it stands right now, shows that there are more customers that want to and are able to take deliveries in the near-to-medium term.” 

On the basis of facts provided above, Safran has issued a target price of $277 for Boeing, while Noah Poponak has upwardly amended the target price of Boeing to $238, from $209 issued earlier. The target price issued by Safran is the highest on Wall Street, reflecting a premium of about 35% from yesterday’s close. Safran has pointed out that his target price is approximately 15x the $18 per share anticipated by him as a free cash flow of Boeing. To justify his calculation, he states that Dow trades for 17x free cash flow. However, currently, Boeing is not generating any free cash flow. Therefore, the stock may remain range-bound with slight bullish bias in the near-term.

The historical price chart indicates that the stock has sharply bounced off the support at 125. Additionally, the stochastic oscillator is rising. Therefore, we are anticipating the stock to move up in the short-term.

boe - technical analysis -10th June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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