Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Boeing Are Up Today

By Lou Whiteman – Updated May 26, 2020 at 12:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could the worst be over for its airline customers?

What happened

Shares of Boeing (BA -1.59%) climbed 5% on Tuesday, fueled by broader market optimism that the economy is beginning to return to normal and a surge in airline stocks. Boeing shares have plummeted this year as its airline customers have scrambled to survive, but Tuesday's headlines offer reason to hope the worst of the pandemic might be behind us.

So what

Boeing shares have lost more than half their value year to date, as the COVID-19 pandemic has caused airlines that just months ago were in expansion mode to instead cut costs, ground planes, and focus on survival. Boeing is a diversified company with a large defense business, but commercial aerospace has been its cash cow and driver of growth for the last decade.

A Boeing 787 Dreamliner gains altitude.

A Boeing 787 Dreamliner. Image source: Boeing.

The company was already facing challenges heading into the pandemic, with its 737 Max grounded for more than a year after a pair of fatal crashes. Boeing has overhauled its management and taken steps including cutting its dividend and raising new debt to help offset a $4.7 billion first-quarter loss.

Boeing, like its airline customers, needs to see travel normalize to alleviate some of the uncertainty surrounding the stock. Investors saw signs of normalization over the Memorial Day weekend in the U.S., with crowds flocking to beaches and other traditional vacation sites. Markets are also encouraged by good news regarding the development of COVID-19 treatments and vaccines from Merck and Novavax.

Boeing also got a boost on Friday when investor Michael Burry, made famous by The Big Short, disclosed that his Scion Asset Management hedge fund had bought in.

Now what

Boeing has plenty of cash and is at no risk of a liquidity crisis, and a recovery in air travel is certainly good news for the company. But investors need to remain cautious.

Even if travel does begin to normalize, airlines that have taken on mountains of new debt to weather the crisis are unlikely to buy new planes anytime soon. Boeing makes some money off of spare parts sales, but there are other aerospace companies that are likely to rebound faster.

The company still needs to get its 737 Max flying again and has a hole in its new-plane portfolio that is likely to sting when airlines start buying again. The worst might be over for Boeing, but I see no reason to buy in.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$123.34 (-1.59%) $-1.99

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.