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Earlier this week, Boeing (BA) released to government officials and select pilots a software fix to its 737 Max 8 aircraft which suffered two fatal crashes over the past six months. Though these software fixes have not been green-lighted, it is a step forward in ultimalty getting the grounded aircraft back in the air. The challenge at hand is the MCAS safety feature, which is an automated program that prevents the plane from going into a stall. But while this is Boeing’s most pressing challenge, a Congressional investigation and increased regulation may be coming, which would increase scrutiny on the normally well-trusted company.
Feinseth is looking long-term on Boeing. He says there is “little long-term impact from the current issues that are affecting BA’s stock price,” as the company “is in the process of releasing a free update of anti-stall software for the issue that will expand safety functionality integration and pilot training going forward.” Essentially, the analyst points out that once this one problem is fixed, Boeing will see clear skies ahead.
Helping Boeing’s long-term potential is “greater demand for commercial aircraft, driven by increasing demand in passenger and freight traffic along with an upcoming increase in retiring older planes.” Feinseth says that demand for “aviation services including aircraft, maintenance, and supply chain support is expected to grow over 4% annually over the next 20 years to a total value of over $8.8 trillion,” of which Boeing controls a massive stake as it is one of of two major commercial aircraft manufacturers.
Beyond the commercial market, Feinseth says Boeing “is also benefiting from increasing needs in cybersecurity, communication systems, and greater defense spending,” while high returns on capital and profit will be driven by “increases in gross margin and a lower tax rate.” Furthermore, the analyst believes, “the potential for a new trade agreement with China in the next few months is also a significant upside catalyst.”
All in all, many analysts seem to be looking at Boeing as a long-term stock, with the recent dip a buying opportunity. The company is the largest in the US industry, and competes only with Airbus on large commercial contracts — with worldwide demand for air travel and new planes increasing, it only makes sense that this is passed down to Boeing.
TipRanks analysis of 23 analyst ratings shows the analyst community generally agrees with this belief; 16 analysts recommend Buy on BA stock, five suggest Hold, and believe Sell is the right approach. The average price target among these analysts stand at $431.13, which implies a 13% upside from its current level. (See BA's price targets and analyst ratings on TipRanks)