Is Boeing Stock A Sell?

Boeing Co (NYSE:BA) was flying high during the Trump administration, but it was grounded when world travel came to a halt. BA shares nosedived from the $300-$400 range to a low of $89 at the onset of the pandemic and has struggled to reclaim its former levels.

COVID-19 isn’t the only storm – the company’s 737 Max was involved in two deadly crashes in 2018 and 2019. It spent 2020 embroiled in controversy over its safety measures, leaving some investors wondering is Boeing stock a Sell?

Major airlines announced they’re cutting back new airplane orders for the next five years. Meanwhile, a new White House administration threatens to bottleneck growth potential in the aerospace and defense industries. 

Let’s dive into this Chicago, Illinois-based manufacturer to determine if it can skyrocket back to its regular cruising altitude in the next year.

Why Did Boeing Drop?

Boeing stock was grounded long before the rest of the airline industry based on controversy related to the 737 Max.

Prior to that, the company, which is over a century old, had a spotless image leading into the scandal. Pilots for commercial airlines are likely to fly a Boeing jet, and its automated flight control was long revered in the industry.

From the 1980s through 2018, Boeing rose from a $5 share price to a high over $400 before crashing at the onset of the pandemic as investigations of failures in its supply chain underscored more serious problems just as the industry landed in the biggest global disaster in recent history: COVID-19.

The company’s Maneuvering Characteristics Augmentation System (MCAS) and an issue with the sensors determining the plane’s angle of attack (AoA) ultimately caused the issue. Its planes were grounded, which put a chokehold on the airlines. But the viral outbreak shut down airlines around the world anyway.

Global quarantines, travel restrictions, and stay-at-home orders hampered the airline manufactuer’s growth potential. By the holiday season of 2020, the stock was hovering around $200 and trending to $250, down from a 52-week high of $355.29.

Boeing has investors uneasy as it navigates a PR nightmare coupled with the pandemic and elections. The real question is what it can do to resume normal operations moving forward?

The election season is over and coronavirus vaccines are on the way. The airline industry looks to recover slowly over the next five years as a second wave of the virus washes over us. Boeing is heading up again to close the year strong, but should you sell it?

Is Boeing Stock A Sell?

Boeing suspended dividend payments during the worst of the economic downturn, with its February 2020 quarterly payment being the last one.

The company’s third quarter earnings report, released late October, showed it generated $3.6 billion in revenue for the quarter and $11.8 billion year-to-date in 2020. Still, cash flow dropped to negative $15.4 billion in the timeframe.

Meanwhile, the FAA cleared the 737 in November 2020 as vaccine announcements made it clear analysts expects a return to relative normal in 2021. This sent Boeing stock soaring, providing an opportunity for those who bought in early to gain a healthy profit and rise in their portfolios.

It could rise through the end of the year and even into January, barring any bad news occurring between now and then.

Boeing only delivered 98 planes in the first nine months of 2020, down from 301 year-over-year. This highlights one of the biggest risks in holding Boeing stock waiting for that extra 40-50 percent gain back in its normal cruising altitude.

Will Boeing Stock Plummet? 

The biggest risk to Boeing’s business is airlines cutting airplane orders, as the pandemic reduces the need for their fleet sizes.

It already lost two thirds of the orders for 2020, and it could be another five years before it returns to pre-pandemic levels, assuming no further disasters between now and then.

Of course, the word “disasters” is used loosely because Boeing still has plenty of military contracts in place. In fact, 30 percent of its global revenue came from Defense, Space & Security Systems, while 21 percent came from Global Services.

Commercial Airlines only crippled a small part of it, as the U.S. government still accounts for 31 percent of its revenue. And much of the debt on its books is temporary through a $25 billion debt offering as it sits on 400 planes with no buyer.

There are also plenty of related stocks with more potential to gain. Rolls-Royce, for example, dropped to $1.38 on OTC markets after being pummeled throughout 2020.

Once the supply chain is fixed, the company’s return to the $10-15 trading range represents a much bigger gain than either Boeing or rival Airbus at this point.

Will Boeing Stock Recover?

Major airlines like American Airlines Group Inc (NASDAQ:AAL) are hard at work marketing Boeing and American as safe to travel. And 2021 is set to experience a travel boom, regardless of what restrictions may be in place.

The pandemic destroyed the travel industry, but it also gave everyone a thirst for getting outside and exploring the world. An average person is expected to take 3.58 trips in 2021, versus 2.46 in 2020 and 3.24 in 2019.

Ryanair Holdings plc (NASDAQ:RYAAY) also placed a big order of 75 planes to get things moving. Should these trends continue, Boeing investors could possibly see BA share price soar to new heights over the next half decade.

Is Boeing Stock A Sell? The Bottom Line

Boeing is sitting on a ton of inventory as airlines recover from global travel shutdowns. It’s one of few companies in its industry that didn’t take a government bailout and instead raised money through debt offerings that capped the company’s stock prices through much of 2020.

The odds are that others in the airline industry that will profit more than Boeing unless it lands some big government contracts in the next five years. Nevertheless, earnings and revenues are looking more optimistic in the next fiscal year, though it currently appears the share price has factored in those forecasts.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.