A Lufthansa Boeing 747 jet takes off on Tuesday.
Vincent Jannink/ANP/AFP via Getty ImagesAnalysts are adjusting their forecasts for Boeing’s earnings and stock price, looking ahead to the eventual comeback of the grounded 737 MAX jet to commercial service. A return would be good news for Boeing, but Wall Street seems split on the impact it would have on the shares.
Thursday morning, Benchmark analyst Josh Sullivan reduced his target for the stock price to $210 from $230 and slashed his estimate for 2021 per-share earnings to $2.38 from $4.58. Benchmark “adjusted estimates given that the air traffic recovery has taken longer than [Boeing’s] own assumptions,” wrote Sullivan in a research report.
Over the past week, U.S. airport traffic was down 65% year over year as a result of the pandemic.
Despite the cut, Sullivan still rates Boeing stock (ticker: BA) at Buy, partly because he expects the MAX’s return to boost shares. The jet has been grounded worldwide since March 2019, following two crashes of the plane within five months. Boeing hopes to have the plane back in the skies by the end of 2020.
UBS analyst Myles Walton is more cautious. He rates shares Hold and has a $150 price target for the stock. That’s below recent levels of about $156 a share.
He is less optimistic than his peers about Boeing’s cash flow. Walton believes Boeing will generate about $7 billion in annual cash flow from 2022 to 2024, while the consensus view on Wall Street is that the figure will be about $10 billion.
He says airline customers aren’t anxious to have MAX jets right now, because of the lack of air-travel demand. That means Boeing might have to offer additional concessions to customers to prevent them from canceling purchases of more MAX planes.
Concessions can come in the form of price reductions or improved features added to a MAX for no cost. They will reduce cash flow as deliveries of the plane ramp back up once it is allowed to carry passengers again.
Walton is also the analyst who also surveyed fliers about getting back on a MAX. That was in 2019, before pandemic. Back then he found most would be willing to fly after six months of safe operation. But those survey’s haven’t been done in a post-Covid world and airline-customer interactions could make 737 MAX complications stretch into 2021.
Boeing is burning through cash this year and expects to do so in 2021 as well—a data point that came as a modest surprise when the company reported its third-quarter numbers in late October. Vertical Research Partners analyst Rob Stallard, for instance, took his estimate of 2021 free cash flow from generation of $2 billion to a burn of $2 billion after the quarterly report.
He rates Boeing shares Hold and has a $137 price target for shares. Baird analyst Peter Arment also rates shares Hold. His price target is $165.
Arment expects another $6 billion in cash outflow from concessions to MAX customers. He says that to date, Boeing has agreed to about $3.1 billion in concessions.
Overall, about 40% of analysts covering the company rate shares at Buy. The average Buy-rating ratio for stocks in the Dow Jones Industrial Average is about 58%. The average analyst price target for Boeing stock is $180, implying gains of about 16%. That isn’t bad, but shares still carry risk related to Covid-19 and the MAX.
Boeing stock was up 3.1% in midday trading Thursday. The S&P 500 and Dow Jones Industrial Average were up 2.3% and 2.1%, respectively. Year to date, Boeing shares are still down more than 50% as Covid-19 has decimated demand for commercial air travel.
Write to Al Root at allen.root@dowjones.com
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