Boeing Rises on Cowen Upgrade With Demand Ahead
By Christiana Sciaudone
Investing.com — Boeing (NYSE:BA) rose almost 3% after getting an upgrade from Cowen as our return to the skies bolsters demand for airplanes.
Analyst Cai von Rumohr bumped the stock to outperform from market perform, StreetInsider reported. He increased the price target to $290 from $240.
“Beyond traffic, aircraft demand is bolstered by (1) better economics of new planes, (2) low interest rates, and (3) lower carbon emissions," von Rumohr wrote in a note.
Boeing's had a tough time of it with a series of problems plaguing the plane maker, including with its 737 MAX that was grounded after two fatal crashes killed more than 340 people in 2018 and 2019. Boeing admitted to defrauding the public and agreed to pay more than $2.5 billion after getting criminally charged by the Department of Justice. In April, dozens of MAX aircraft were pulled from service after Boeing warned of an electrical insulation fault in a backup power control unit, and inspections are revealing similar problems in other parts of the plane, Reuters reported.
“Now that U.S has hit a 50% vaccination rate, air traffic/indicators are accelerating. Europe&China are likely to reach ~50% in two and five months, respectively; and IATA now expects air traffic to top 2019's level by 2023. This has encouraged Airbus to hike its A320 supplier rate guide to 64/month in Q2:23 after paring rates just last January. Because airlines fly either A320’s or 737’s and switching costs are high, 737 demand also should benefit,” the analyst said in a note sent to clients.
The analyst adds that there’s a strong set up for replacement demand. Widebodies especially should be in demand as those in service tend to be older than narrow bodies in services, and less fuel efficient.
The analyst raised 2022-23 estimates and sees 737 MAX reaching 525 deliveries in 2024 versus Airbus's estimate of more than 650.
The second quarter, however, will probably be a "miss,” but it'll be short-term.
“FAA halt to delivery of 737's and now 787's (again) will restrain Q2. It's a lingering overhang but should ease in H2 as FAA comfort grows with revised approval steps. Timing of China's MAX OK also is a concern. Approval delay by China (~20-25% of MAX deliveries) looks tied to political issues since regulators' work is mostly complete and domestic traffic has recovered. But it's not in U.S. or Chinese interest to hold trade hostage to their differences; hence, China seems likely to OK the MAX at some point,” the analyst said.
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