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What happened
Actions of Boeing (NYSE: BA) lost altitude on Monday following a downgrade by an analyst. The stock traded as high as 4.6%, with investors digesting the long coming rally for the aerospace giant.
So what
Boeing and its investors will be happy to see the end of 2020. The stock has lost 34% for the year, and at one point traded nearly 75%, due to recurring issues with the 737 MAX and the impact of the pandemic on commercial airlines.
The year has apparently ended on an upbeat swing, with the 737 MAX recertified to fly again after 20 months on the ground and a COVID-19 vaccine giving hope that the worst is over for aviation. But Boeing is facing a multi-year recovery and has no quick fixes.
Image source: Boeing.
Bernstein analyst Douglas Harned downgraded Boeing on Monday to underperform market performance, noting that an expected increase in sales of the 787 Dreamliner in the fourth quarter had never materialized. Boeing delivered just one 787 in December and none in November, and the plane continues to be haunted by questions about the quality of production.
The 787 kept Boeing in flight during the first days of the 737 MAX grounding, but Boeing will find it difficult to rely on the revenue from that aircraft to fuel a rebound elsewhere. Boeing contracted $ 25 billion in new debt in 2020 in response to the dual crisis and needs a rebound in aircraft sales to pay off that debt.
Now what
Boeing is at a crossroads. The worst is probably behind, and with the stock still well below what it was before the 737 MAX emissions and the pandemic, it’s tempting for investors to get on board and hope to ride the wave.
But Boeing faces a huge challenge in delivering planes in this environment, and production is unlikely to hit supposed levels when the stock was flying high anytime soon. And Boeing’s current price for sales is actually much higher than it has been for most of the past three decades, raising questions about the company’s affordability.
I’m optimistic about a possible aviation recovery, but there are much better alternatives to Boeing for those looking to invest on the basis of this recovery. Investors should be wary of Boeing now.
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