The former CatBo heyday, when Boeing stock (NYSE:BA) and Caterpillar stock (NYSE:CAT) commanded the Dow Jones Industrial Average (DJIA), will be remembered by longtime readers. But during the previous five years, Caterpillar has flourished, exceeding the Dow, while Boeing saw its value decline by 50%.

Now that it is reportedly in the running for a potential triple-digit order with United Airlines, the aerospace behemoth may finally be getting back on track (UAL). This future increase does not need investors to purchase the shares right away.

Even if some of Boeing’s troubles are out of its control, it is difficult to claim that the company has been treated unjustly in recent years. True, Covid-19 wreaked havoc on air travel and jet demand in addition to stifling production by jamming the supply chain.

However, Boeing’s most significant issues are caused by itself. Top of the list are problems with quality control in the production of its 787, as well as the fatal 737 MAX crashes that resulted in the aircraft’s prolonged grounding, a bad reputation for the Federal Aviation Administration, and the resignation of Dennis Muilenburg, the organization’s then chief executive.

Given all of that, it is not surprising that Boeing stock (NYSE:BA) has diverged from that of its competitor in Europe, Airbus (EADSY), which, despite its own problems, has increased by over 20% over the previous five years.

Investors have grown more confident that Boeing (NYSE:BA) can get past the difficulties of the previous few years as the majority of the world looks to leave the most stringent pandemic restrictions behind it and tourism is booming. It wasn’t especially shocking when Bloomberg reported that United is close to a contract for 100 wide-body planes with either Boeing or Airbus. United had just upped its revenue estimate due to high demand and had previously ordered narrow-body MAX jets. The story, which was based on unnamed sources used by the news agency, has not been confirmed by any of the three corporations.

The good news is that it is conceivable that Boeing can once again provide substantial competition with Airbus, which has snatched up orders from airlines while its U.S. competitor has suffered, even though it may not eventually get the sale.

That’s not the only indication that Boeing is advancing. Since the MAX was grounded internationally in March 2019, a Mongolian airline allegedly conducted the first commercial flight utilizing the aircraft in China this month. With regard to how it interacted with the public following the MAX accidents, the firm and the Securities and Exchange Commission reached a $200 million settlement in late September. Boeing (NYSE:BA) is also delivering critical aircraft to major airlines; in August, it received authority to begin delivering 787 planes after an extended hiatus.

Optimism on the Boeing Stock

It should come as no surprise that 20 out of the 25 analysts tracked by FactSet are optimistic about Boeing stock, given that the company still has a near duopoly in a sector with long-term secular demand projections and that its shares have fallen by a market-beating 36% this year. Even if the average price target has decreased by more than 21% since the spring, the consensus forecast is for the stock to increase by more than 55%.

Even the bulls, though, are less enthusiastic than one might anticipate. Consider Matthew Akers of Wells Fargo, who rates Boeing as Buy and has an above-average $210 price target. However, he cautioned that as long as the MAX is essentially out of circulation in China (despite having received official re-certification), Boeing will be missing a market that is anticipated to account for a quarter of that aircraft’s orders.

Big wagers against a turnaround were not being placed towards the conclusion of the second quarter. Just 99 institutional investors opened stakes in Boeing over the three months leading up to June, while 299 completely dumped their holdings, according to SEC records. 832 people increased their share count, while over 1,100 dropped their positions.

The commercial flight earlier this week may have indicated that Boeing is finally making progress in the Chinese market, but that information was released almost simultaneously with an update on third-quarter deliveries. It demonstrated a sequential reduction, with the MAX falling by 14% from the second quarter.

This slowdown makes it more difficult for Boeing (NYSE:BA) to meet its goal of delivering about 400 MAX airplanes for the entire year, as management stated in its earnings call for the second quarter. When Boeing releases its third-quarter earnings later this month, Ken Herbert of RBC Capital Markets—one of the few analysts who rate the Boeing stock as Neutral or the equivalent—expects that Boeing will cut its MAX delivery projection to somewhere around 350.

If not, and China shows signs of being more open to having the MAX return in full, it would go a long way toward enabling Boeing to increase production and provide positive cash flow, perhaps signaling a turning point for the company.

But we’re still not there. If investors wait for more proof that Boeing is really on the mend, they probably won’t miss much.

 

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