Stock Analysis: Boeing (BA)

Emma Monaghan, The London School of Economics and Political Science

Overview

In March 2019, Boeing (BA) stock took a hit following the worldwide grounding of its 737 Max 8 aircrafts due to technical faults which had caused two fatal plane crashes. Two years after the discovery of these technical issues, Boeing 737 Max 8 aircrafts are flying once again and Boeing stock seems to be recovering in spite of the significant losses experienced by the entire aviation industry due to the Covid-19 pandemic.

Analysis

The initial impact of the Ethiopian Airways crash in March 2019 on BA stock was a devastating fall of 12% – almost Boeing’s worst trading day since the terrorist attack of 9/11. At this point, Boeing had a back order of six years’ worth of production for the 737 Max 8 aircraft, meaning that potential cancellations of these orders would lead to substantial longer-term losses for Boeing and would slow growth for the aviation industry as Airbus would be unable to meet this demand for its equivalent aircraft. Boeing experienced many further setbacks up until the Federal Aviation Administration (FAA) made the decision to ground the 737 Max 8 worldwide as more and more countries and airlines grounded the planes, including China, which was one of the largest buyers of Boeing aircrafts.

Following the worldwide grounding of the 737 Max 8, BA’s stock price plummeted, wiping $28 billion from its market value, and the decision to stop any new deliveries of the aircrafts dealt a further blow to the company. Given that the 737 Max 8 had become a very important product in Boeing’s portfolio, the 20-month grounding period caused a 37% decrease in revenue and its first annual loss in two decades. To make matters worse, Boeing’s stock price then plummeted to its lowest level since 2001 in March 2020 as the world went into lockdown and all of its aircrafts were essentially grounded. This completed what some have referred to as the ‘triple whammy’ for Boeing – first the Lion Air crash, then the Ethiopian Airways crash and finally, the Covid-19 pandemic put a temporary stop to all air travel. 

Boeing stock then began to recover with the prospect of summer travel after lockdown restrictions were eased, and after the grounding order was lifted in November 2020, delivery orders started to trickle back in and the stock price hit its highest level of $240.63 since the first plane crash. Since then, BA seems to have had a much steadier recovery, accelerated by announcements of several airlines purchasing Boeing 737 Max 8 aircrafts, including  Ryanair ordering 210 – a deal worth $22bn, and United Airlines ordering a further 200. Additionally, Boeing stock jumped recently following the news of an imminent lift of the grounding orders in China, which is one of Boeing’s major markets. BA’s Earnings Per Share (EPS) have increased from -$4.78 to $0.40 since 2019 and the company reported a revenue jump of 44% to $17 billion for the second quarter of 2021, which exceeded expectations and further fuelled an increase in its stock price.

Conclusion

Boeing’s extraordinary recovery in 2021 seems to signal good things to come, especially with international travel slowly returning to pre-pandemic levels and given that historical data has shown that investors seem to have a short memory when it comes to disasters of this kind. Although BA has not recovered to the same extent as its major competitor, Airbus, the analyst ratings are fairly split between buy and hold as the average stock price target is an optimistic $273.77, a 19% increase from its current price.

The Max is back, but will Boeing be able to rescue its reputation?

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