It is no secret, US airplane giant Boeing (BA) has suffered badly at the hands of COVID-19, with one piece of bad news following the other. But with Boeing shares still down by 60% year-to-date, might now be the right time to pull the trigger on BA stock?
Not quite, says Canaccord’s Kenneth Herbert. The 5-star analyst believes there are too many variables to consider and expects Boeing’s commercial services business to drop by more than 50% in 2Q20 and “likely at very depressed levels for the rest of 2020.”
It should come as no surprise, then, that Herbert rates Boeing shares a Hold. In fact, Herbert had maintained his Hold rating on the stock since 2016. The good news for new investors is that Herbert's $175 price target implies a 40% upside from current levels. (To watch Herbert’s track record, click here)
Boeing has a lot of issues to contend with, as highlighted in the company’s recent earnings statement, and that is even before taking into consideration the long-term grounded Max 737. Cancelled orders, jittery investors on account of a suspended dividend, significant pandemic driven lower demand, an industry in tatters with uncertainty on the horizon, all weighing down on the company.
But there were glimpses of hope in the quarter. Despite losing $1.35 billion, and spending $4.7 billion in the process, the cash burn was not as bad as estimated, coming in below the $5 billion-plus many analysts anticipated ahead of the report. And although the company ended Q1 with $39 billion of debt, it saw out the quarter with $15.5 billion in total cash.
Boeing has also taken steps to reduce costs, with the intention of cutting loose 10% of its workforce along with adjusting its commercial airline output to match the current lower demand. But it is clear the company will need to raise cash and management have said it “continues to explore options.” Additionally, based on its current outlook, the company anticipates being FCF positive in 2021, and expects a more “normal” environment to resume by 2022 as “production rates stabilize.”
Herbert summarized, “We believe that until investors get greater confidence in Boeing’s liquidity, and in the pace of the expected recovery in travel, the stock will see limited upside. We believe the risk around future production schedules continues to be biased to the downside, even with the substantial cuts announced by the company. We appreciate the implied upside in our $175 target could justify a more positive rating. However, with the current volatility in the stock, we are seeing much greater than normal movement and temporary price dislocations.”
All in all, when considering BA’s prospects, the rest of the analyst community’s views are a mixed bag. A Moderate Buy consensus rating is based on 6 Buys and 13 Holds. Although, with an average price target of $183.11, the Street anticipates upside of 37% in the year ahead. (See Boeing stock analysis on TipRanks)
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