4 Reasons Why Boeing Stock May Be Getting Ready For a Liftoff

The risk-reward balance for Boeing Co BA shares has turned positive, according to an analyst at Wells Fargo Securities.

The Boeing Analyst: Matthew Akers upgraded Boeing shares from Equal-Weight to Overweight and increased the price target from $224 to $272, suggesting roughly 20% upside from current levels.

The Boeing Thesis: Boeing shares have lagged the S&P 500 Index by about 30% since their March high, analyst Akers noted. The company is most levered to the post-COVID-19 recovery among Wells Fargo's coverage and should outperform as air travel continues to normalize, he added.

Boeing, the analyst said, will benefit from China's 737 MAX recertification. Boeing's recent test flights in China and easing political tension suggest the grounding could be lifted soon, serving as a catalyst for the stock, he added.

Secondly, the analyst expects 787 deliveries to resume, with the company and FAA working on that front.

Thirdly, higher fuel prices could drive more aircraft retirements, increasing replacement demand, Akers said. Aircraft replacements historically made up about half of the demand, and tend to increase with higher fuel as older, less efficient aircraft become unprofitable, the analyst added.

Related Link: Is Boeing's Stock Overvalued Or Undervalued?

International flight restrictions are likely to ease from here, supporting aircraft demand, the analyst said. The shift to quarantine-free travel, in particular, appears to drive the largest lift in travel demand, he added. Based on COVID-19 case rates, the analyst estimates countries representing 20%-25% of pre-COVID-19 travel to be in a position to potentially lift travel ban/quarantine rules.

Following revised guidance during third-quarter earnings, deliveries expectations are now more reasonable, Wells Fargo said. Boeing's large inventory of completed 737 MAX/787 aircraft provides protection against further supply disruptions, the firm added.

"High inflation is unlikely to derail the story, as BA has historically outperformed during periods of high inflation with aircraft contracts structured to pass through cost increases," the firm said.

BA Price Action: Boeing shares were up 0.52% to $226.98 Wednesday morning at publication.

Related Link: Boeing Books Multiple Orders For Freighters; Inks MoU With Titanium Supplier

Photo: Courtesy Boeing