Boeing Stock Is a Buy as Travel Recovers. Here’s the Data.

10 Jun 2020

Barron's

Boeing Stock Is a Buy as Travel Recovers Heres the Data

Benchmark analyst Josh Sullivan thinks Boeing shares have more room to run as travel improves. Tuesday, he raised his target for the stock price by $80.

Photograph by Jason Redmond/AFP via Getty Images

Benchmark analyst Josh Sullivan thinks Boeing shares have more room to run as travel improves. Tuesday, he took his Boeing stock target price up by $80.

“Boeing’s fate, as it is with airline customers, is tied to the willingness of passenger to return to the skies,” he wrote in a research report. Few would dispute that point.

And Sullivan has been encouraged by recent gains in U.S. air travel. About 2.6 million people passed through Transportation Security Administration checkpoints at American airports over the past week. That is up more than 228% compared with two months ago.

Traffic is still down by about 80% year over year, but at the current rate of change, the figures suggest domestic travel could reach 50% of 2019 levels by late summer, Sullivan said.

An improving outlook for travel has already boosted Boeing (ticker: BA) shares, lifting the price by almost two-thirds over the past month. Airline shares have also rallied, gaining about 60% on average over the same span.

The Dow Jones Industrial Average, for comparison, has tacked on 12.4%. The S&P 500 is up just under 10%.

Sullivan already rated Boeing shares Buy, but before Tuesday, his price target was $180 per share. Boeing cruised past that level in early June. His new $260 target is about 17% above recent trading levels.

Despite Sullivan’s confidence, only a little more than 40% of analysts covering the company rate shares the equivalent of Buy, while the average for stocks in the Dow is about 55%. That has been the relative level of bullishness on Boeing shares since October 2019, when Boeing’s effort to fix its 737 MAX jet was the biggest issue for investors to weigh.

The MAX—Boeing’s newest single-aisle aircraft—has been grounded world-wide since March 2019 following two deadly crashes inside of five months. Boeing has halted deliveries of the plane and hopes to recertify the jet with aviation authorities, allowing it to carry passengers again, by the end of the summer.

One way investors can think about the MAX- and pandemic-related market declines at Boeing is to look at the overall enterprise value, which is, very roughly, market capitalization plus debt. Looking at just market cap can be misleading because Boeing was forced to borrow a lot of money in 2020 to meet near-term cash flow needs during the pandemic.

Boeing’s enterprise value is down roughly $25 billion in 2020, about half of the total decline between the second MAX crash in March 2019 and the end of last year. It’s a sign that right now, the market sees the jet’s crashes and grounding as more significant than the pandemic in terms of long-term value.

Boeing shares fell 5.9% on Tuesday, giving back some of their recent gains on a down day for the broader market. The Dow fell 1.1% and the S&P 500 declined by 0.8%.

Boeing shares remain down about 33% year to date. Airline stocks are off about 40% in 2020 on average.

Write to Al Root at allen.root@dowjones.com