Boeing investors can breathe a sigh of relief as the stock makes a recovery following a recent quality problem. Despite taking a hit after a disclosure about a supplier issue, there is some positive news, especially from China.
Last Thursday, Boeing's stock (ticker: BA) dipped nearly 5% due to the discovery that certain holes drilled in the aft bulkheads of specific versions of 737 MAX jets did not meet specifications. The parts in question were supplied by Spirit AeroSystems (SPR).
Fortunately, since then, shares have rebounded, although they are still approximately $5 below their pre-issue value. As of early trading on Monday, shares were up 0.2% at $223.92 per share. In comparison, the S&P 500 and Dow Jones Industrial Average each saw gains of about 0.5%.
According to TD Cowen analyst Cai von Rumohr, the severity of the 737 aft pressure bulkhead issue seems to be less than initially feared. In a report released on Monday, he stated that only around one-third of the current production of MAX 8, 8-200, and 7's are affected by this problem.
It is worth noting that the designations 7, 8, 9, and 10 refer to different MAX sizes, with some MAX 7s and 8s being supplied by other companies. As a result of this issue, von Rumohr has revised his estimate of 2023 MAX deliveries downward by 25 units to 415. However, this adjustment still falls within Boeing's original prediction range of 400 to 450 deliveries. In the event of any further delays, the affected jets would be scheduled for delivery in 2024.
Von Rumohr has assigned a Buy rating to Boeing shares and set a price target of $260. Similarly, Citi analyst Jason Gursky also rates the shares as a Buy, with a price target of $285 per share.
The Boeing Stock: A Positive Outlook
The future of Boeing stock is looking promising, and it's not just because of recent news regarding bulkhead issues. One of the key factors driving optimism is China's role in the company's recovery. Recent reports suggest that Boeing is on the verge of resuming deliveries to Chinese airlines, marking the second significant step in normalizing their relationship.
The first step came in December 2022 when the MAX jets were reintroduced for commercial service in China. This marked a significant milestone as nearly 90 MAX jets, which had been grounded worldwide from March 2019 to December 2020 following two tragic crashes, are now back in operation within Chinese airline fleets.
The third step in this normalization process involves securing additional MAX orders. China has already placed orders for hundreds of these jets. However, it's important to note that the demand may be even higher than what the numbers reflect since aircraft lessors also supply jets to Chinese airlines.
While Boeing has not provided an immediate comment on MAX deliveries, investors eagerly await updates. They will likely find out when Boeing reports its monthly orders mid-month or when industry observers spot a MAX jet flying from Washington state to China.
As of Monday trading, Boeing stock has experienced a 17% increase year-to-date and a 36% rise over the past 12 months. This positive trend can be attributed to the gradual recovery of the commercial aerospace industry as more people resume air travel post-pandemic.