Investors were greeted on Tuesday with two pieces of good news regarding Boeing (NYSE:BA) and its troubled 737 MAX. That, coupled with the continued optimism surrounding a COVID-19 vaccine, sent shares of the aerospace giant up 5% in late-morning trading.
It's been a tough year for Boeing, with the company hit by a one-two punch of the continued grounding of its 737 MAX airplane and the impact of the pandemic on airlines. But investors in recent days have been greeted with positive developments on both issues, and it is helping the stock gain altitude.
Boeing's 737 MAX, grounded since March 2019 after a pair of fatal accidents, reportedly could be cleared by U.S. regulators to fly again as soon as Nov. 18. Getting the MAX airborne is key to the bull case for Boeing because it means the company can begin to deliver some of the 400-plus airframes it has built during the grounding, helping to reverse its cash burn.
But given the pandemic's impact on air travel, placing those planes will be no simple challenge. Boeing is reportedly in talks with Southwest Airlines to place some of the planes that are without buyers. Boeing would likely have to lower its prices to entice Southwest to do a deal, but at least it would help clear out inventory and bring much-needed cash in.
J.P. Morgan also raised its price target on Boeing to $190 from $155, with analyst Seth Seifman writing that the news on progress developing a COVID-19 vaccine makes aerospace stocks "more investable." But Seifman kept his neutral rating on the shares.
Assuming the 737 MAX is recertified, it seems likely the worst is now behind Boeing. Still, investors should be mindful the recovery is going to take a significant amount of time.
Boeing has absorbed more than 1,000 cancellations and order adjustments in 2020, and with the airline industry not expecting passenger volumes to return to pre-pandemic levels for years, we are unlikely to see a surge in orders any time soon. At best, Boeing hopes to be making 30 737 MAXs monthly by 2022, well short of its target to build more than 50 aircraft per month it had set prior to the grounding and the pandemic.
For investors, there are better ways to buy into a potential aviation recovery. Tread carefully on Boeing even when the 737 MAX recertification becomes official.