Boeing took a big hit when air travel collapsed with the onset of the covid-19 pandemic. But why is Boeing stock recovering now that the pandemic continues? According to Investor’s Business Daily, Goldman Sachs Boeing is doing a good job cutting production and reducing costs while airplane orders have not fallen as badly as expected.
Why Is Boeing Stock Recovering?
Boeing has seen substantial reductions and retraction of airplane orders. The total aircraft order reduction globally is around 17% but that is quite a bit below what many had expected. However, airlines with healthy balance sheets and cash reserves, state-owned airlines, leasing companies, and carriers who are cycling out aged aircraft are still placing orders. Airplane orders for commercial jets are typically placed years in advance of delivery so airlines and other buyers with the cash are still looking to the future and the eventual recovery of the airline industry.
In addition, Boeing has other parts of its business that are not directly affected by the pandemic. Despite the software snafu that put its Starliner space craft for deliveries to the International Space Station behind, this project is going forward as well as other space and military ventures.
In our 2019 article about how bad it will get for Boeing, we looked at their range of businesses and concluded that they would not only survive but prosper in years to come bases on their strong intrinsic factors. Not the least of these are the “high cost of entry” nature of their business and the many design and production secrets that make competing with them difficult.
Investors Anticipate the Future for Aviation and Boeing
Boeing had already seen its stock price fall due to the 737 Max crashes and ceasing production of the jet while software issues are being fixed. We believe that the mindset of Boeing as past its prime may have affected how far its stock fell when the pandemic took air travel down. Nevertheless, the stock has doubled in value since its drop to $95 a share just a few months ago. This is likely due to anticipation of a recovery from the pandemic’s effects on air travel but also to a realization that things are not as bad for Boeing as many had anticipated.
The company has halted both dividends and stock buybacks which might otherwise have driven the stock price down but as these actions have supported the company’s balance sheet, we have seen the stock recover to the $200 a share range. But none of this would help without investors believing that Boeing will not only remain a viable company far into the future but also resume its position as the number one or two exporters from the USA competing for slot number one with all of US agriculture.
It would seem that Goldman Sachs is thinking along the same lines as they increase their price target for Boeing from the $195 range to the $235 range.