Boeing: DoJ Settlement Offers a Modest Positive, Says Analyst

Stock Market

Many companies were more than happy to put 2020 behind them, possibly none more so than Boeing (BA). While the A&D giant got off the ropes toward the end of the year, as the 737 MAX finally got recertified for flight, the company still flirts dangerously close to bankruptcy following the coronavirus’ initial impact.

But the headlines at the start of 2021 are showing this year might also be an uphill struggle. A Boeing 737-500 aircraft operated by Sriwijaya Air crashed into the sea last Saturday, just minutes after taking off from Jakarta, Indonesia. While more information is gathered, the situation is being closely monitored by Boeing.

Meanwhile, Boeing is still dealing with the 737 MAX crashes’ repercussions.

Last Thursday, the company entered into a deferred prosecution agreement with the U.S. Department of Justice (DOJ) which means it will avoid a calamitous criminal conviction. Boeing announced a $2.5 billion settlement consisting of a $243.6 million criminal penalty, compensation to the families affected by the two crashes amounting to $500 million, and $1.77 billion which Boeing will pay to customers affected by the MAX’ grounding.

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Looking at the bright side, J.P. Morgan analyst Seth Seifman notes the $1.77 billion earmarked for customers has already been put aside. Furthermore, the analyst calls the DoJ settlement a “modest positive,” based on the relatively small fine and “because this is another step in moving beyond the 737 MAX crashes and grounding.”

That said, the analyst does not think investors were expecting “aggressive DoJ prosecution or a massive fine,” and therefore the development does not represent “the elimination of a major overhang.”

Additionally, while the settlement does bring to an end one aspect of the fallout from the MAX tragedies, there will likely be more developments to come.

“Assuming Boeing abides by the terms of the settlement, this would mark the end of the DoJ’s investigation into Boeing’s actions at the company level and this is a plus,” Seifman said. “Boeing’s last quarterly filing, however, indicated that the company faces several legal actions related to the crashes and a Bloomberg report indicates that families of the crash victims continue to pursue civil suits.”

Overall, there’s no change to Seifman’s rating, which stays a Neutral (i.e. Hold), and is backed by a $265 price target. This figure implies ~30% upside from current levels. (To watch Seifman’s track record,click here)

Boeing’s Street ratings are a mixed bag. Based on 8 Buys, 7 Holds and 4 Sells, the analyst consensus rates the stock a Hold. At $227.69, the forecast is for 9% upside over the next 12 months. (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.

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