Aerospace & Defense

Boeing Stock Flies High as Airlines Return to the Skies

As the stock market soared on Friday, the Boeing Co. flew higher. While the S&P 500 rose 2.62%, Boeing (NYSE: BA) closed at $205.43, up nearly 11.5%.

Still down about 37% year to date, Boeing has been recovering in recent months. The stock’s one-month performance is +59.36%.

In pre-market trading Monday, the stock leaped again, thanks to upbeat Wall Street analyst reports. The aerospace giant was trading at around $222.

Any Bit of Good News Is Welcome

Analysts said BA stock has been boosted by some welcome news from the U.S. airlines industry. American Airlines (NASDAQ: AAL) and Delta Air Lines (NYSE: DAL) both reported increases in air travel, as Americans slowly return to old habits.

The coronavirus pandemic isn’t over, of course, and airlines are still way below their normal passenger levels. As of Monday morning, there were over 1.9 million confirmed cases in the United States and over 110,000 deaths. Some parts of the country have seen rising case numbers in the last two weeks.

On Sunday, the Transportation Security Administration (TSA) screened the highest number of passengers it’s seen in months, 440,000. But on the same date a year ago, TSA screened 2.7 million. In April, there were a few days when TSA saw fewer than 100,000 travelers.

Still, Americans are venturing out more often. In April and May, American Airlines only flew about 20% of its normal domestic schedule. But by July, the airline expects to be up to 55% of the norm.

By the last week of May, American Airlines was seeing about 110,000 passengers per day, an increase from the 32,000 average in April. The airline is promoting summer travel, offering to double frequent flyer miles for trips booked in June. In another sign of normalcy, American is reopening some of its Admirals Club airport lounges.

“We’re seeing a slow but steady rise in domestic demand,” said Vasu Raja, a senior vice president at American Airlines. “After a careful review of data, we’ve built a July schedule to match.”

Delta expects to carry 65,000 passengers daily, more than double the April figure. And the airline plans to double the number of flights it scheduled in May by July.

But it’s not all good news. Delta also announced last week that it would stop flying to 11 U.S. cities indefinitely, including Aspen, Colorado, Flint, Michigan, and Santa Barbara, California.

Bullish Analysts

Boeing has been lifted along with the overall market. But a new analyst rating suggests there’s substance behind Boeing’s positive performance. Seaport Global Securities on Monday initiated coverage of the Chicago-based company, labeling it a Buy.

Seaport set Boeing’s price target at $277. The average 12-month price target is much lower, at $235.20. There are currently nine Buy ratings, 14 Holds and three Sells.

Goldman Sachs also reiterated its previous Buy rating for Boeing. Goldman analysts increased their price target to $238. Over the weekend, Cowen reiterated its Hold rating.

In its commentary Seaport Global said pandemic-related risk is now priced into the stock, which took a huge hit earlier in the year. Already suffering from the 737 Max crisis, Boeing was hammered when airline traffic ground to a halt. Many investors, including Warren Buffett, dumped airline stocks.

Amidst the crisis, Boeing raised $25 billion with an investment-grade bond issue so it could avoid seeking assistance from a government bailout fund established because of the COVID-19 pandemic’s devastating effect on the economy. The federal bailout program could have resulted in the government taking an equity stake in the company.

Boeing recently resumed 737 Max production, on a reduced schedule. The model was taken out of service after two deadly crashes in 2018 and 2019. After taking steps to fix technical issues with the 737 Max, Boeing assumes the Federal Aviation Administration will clear the plane for flight again soon.

Airbus Also on the Rise

Boeing’s major competitor, Netherlands-based Airbus, has also rebounded in the stock market. Airbus stock was up 11.5% on Friday.

Neither company is getting orders for new planes right now. But investors seem to think travel will recover, and airlines will buy aircraft again. The COVID-19 pandemic remains the big unknown here.

Both Airbus and Boeing also have substantial government contracts, which are more recession-proof. Last year, defense represented 45% of Boeing’s business. In the company’s last earnings report, CEO David Calhoun predicted the defense segment would outpace the commercial aerospace segment in 2020.