Boeing’s stock may remain on the ground as the 737 MAX flies again

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The return of

Boeing‘S

737 MAX was supposed to bring clarity to investors. He did nothing but.

The plane was grounded by the Federal Aviation Administration in the aftermath of the tragic Ethiopian Airlines crash in March 2019, the second of a MAX within five months.

At the time, Barron’s Jack Hough said the relapse could last for years and his call sounds prescient. Only now, 616 days later, has the jet been re-certified for commercial flight.

It’s a big deal for the company and it should be for investors too. Boeing (BA) has been an expensive exchange for years, with an annual return of around 30%, on average, in the five years before the MAX’s two crashes. Since the second crash, the shares have fallen by more than 50%.

Of course, accidents are not the only reason for losses. Covid-19 has hit air travel hard, dropping about 75% since March, and Boeing is seeing more cancellations than new orders. The return of the MAX, however, was supposed to be a positive catalyst and remove a bump. It may have, but it’s unclear if the title has benefited from it already.

Wall Street doesn’t seem to have an answer. Only 43% of analysts have a Buy rating on shares, while 50% call it Hold and 7% rate it as Sell. The bull-bear spread is around $ 180, or nearly 90% of the current stock price. When the MAX launched in 2014, the spread between the high and low price targets between the large brokers was $ 64 per share, or about 48% of the share price.

The bulls are quite bullish. Baird analyst Peter Arment updated the Boeing after the MAX was re-certified on Wednesday. It sees a path to a price tag over $ 300 as previously built MAX jets are delivered and Covid-19 vaccines are approved and distributed. That’s around 46% above Thursday’s close of $ 205.71. “The story of the recovery will be multi-year and will require investors to look beyond each improvement year,” he predicts.

But the bears are equally convinced. UBS analyst Myles Walton doesn’t see recertification as an “event that drives demand”. In fact, Boeing has had around 500 MAX cancellations and needs to resell perhaps 100 jets already built but no longer in demand by the original customers. Walton expects tougher days ahead and values ​​the stock at Hold, with a price target of $ 150. “The backlog on the MAX was impacted more negatively by declining demand as customers could cancel outstanding deliveries without penalty, and that could continue, “he warns.

Both analysts are right in some respects. There are certainly tough days for Boeing. Demand for air travel is still a fraction of what it was prepandemic, and Boeing’s net debt rose to about $ 34 billion from $ 8 billion before the second crash. Cash flow and profit margins will be affected by the MAX mess for years.

But a lot of bad news is already reflected in the actions. And things are undeniably getting better. It looks like the world will have at least two effective Covid-19 vaccines by the end of the year. After six months of safe MAX operation, the questions about the plane should vanish. Less questions is a recipe for a higher Boeing share price in 2021.

Write to Al Root at [email protected]