In a year with little to cheer about, it appears Boeing (BA) will see out 2020 on a positive note. After a lengthy process, last week the FAA (Federal Aviation Administration) announced that the 737 Max is once again recertified for flight.
The jetliner has been grounded since March 2019 following two fatal crashes which caused the death of 346 people.
American Airlines will be the first US airline to return the Max to the skies, starting on December 29. However, it may take until 1Q21 for other airlines like Southwest and United Airlines to kick their fleets back into action.
The grounding has had a debilitating effect on Boeing’s pressurized balance sheet but has also been expensive for the whole industry. Moreover, the 737 MAX reenters into a landscape completely altered by the coronavirus pandemic. While the A&D giant initially kept up production of new 737s, it then suspended production due to a slew of order cancellations and rising inventory at its various storage facilities.
With the 737 Max on its way back into airline flight schedules, Canaccord analyst Ken Herbert is in no doubt as to the importance of the event. The re-certification means that “critical first steps can be taken towards ramping the MAX’s reduced production volumes and delivery of the hundreds of aircraft still sitting in the inventory of Boeing and their myriad suppliers.”
Herbert expects Boeing to deliver “some” MAXes in 2020 and believes BA is targeting the delivery of 225 units in 2021.
However, production will remain heavily dependent on how fast Boeing can reduce its bulging inventory. Herbert expects a bumpy road ahead, with competition along the way.
“The challenge now for Boeing will be turning the tide on MAX orders, which have lagged as the company has booked ~500 cancellations on the program,” the 5-star analyst said. “We believe Boeing is focused on delivering as much of the inventory in the next few years as possible and ideally can generate some order activity to help offset the perception that the MAX has struggled in the market relative to the Airbus A320 family.”
For now, Herbert sticks to a Hold rating along with a $210 price target, indicating potential downside of 20% from current levels. (To watch Herbert’s track record, click here)
Overall, this aerospace giant certainly has the Street divided. Based on 20 analysts polled by TipRanks in the past 3 months, 9 rate BA a Buy, 10 say Hold, while only one recommends Sell. The 12-month average price target stands at $200.72, marking a 5% downside (See Boeing stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.