Boeing (BA) stock has fallen significantly, by 11%, since the second 737 MAX crash on March 10. Once the market’s darling, the stock has lost $27 billion in market capitalization in just over five months.
Although the stock has retained its positive trajectory with a year-to-date return of 16.5%, it has underperformed aerospace and defense peers. Its top three competitors, Lockheed Martin (LMT), Northrop Grumman (NOC), and United Technologies (UTX), have returned 47.7%, 49.1%, and 29.1% this year, respectively. Meanwhile, the iShares U.S. Aerospace & Defense ETF (ITA) has risen by 31.1%.
737 MAX crisis changed analysts’ views
Boeing stock rallied early this year on analysts’ optimism about the company’s revenue and cash flow. Its continuous aircraft orders and production ramp-up plans boosted analyst and investor sentiment. However, after two 737 MAX accidents within five months and a subsequent flying ban, its outlook has dimmed.
After the flying ban, several analysts either downgraded Boeing stock or trimmed their target price. Before the Ethiopian Airlines accident on March 10, 77% of the 24 analysts covering Boeing suggested “buy,” and the rest suggested “hold.” Currently, 62% of the 26 analysts covering the stock suggest “buy,” and 31% recommend “hold.” Their average target price has fallen by 6.6% from $440 to $411.14.
The 737 MAX accounted for nearly 70% of Boeing’s overall commercial aircraft deliveries, and 30% of its total operating profit. However, deliveries of the plane froze after its grounding in March, dragging down the company’s revenue by 35% year-over-year in the second quarter. It reported a net loss for the quarter.
What’s ahead for Boeing stock?
Between January 1 and March 8, the stock gained 31% on its growth prospects. That gain has now halved.
We don’t expect any massive changes in Boeing stock until later this month, at which point the company aims to have fixed the software problem that caused the MAX crashes. Positive news on the software could boost the stock, and negative news could drag it down. Therefore, investors may want to wait to get clarity about the 737 MAX’s return to the skies.
As the company has continued producing MAX planes, it could offer faster deliveries once it receives certification. This move could significantly boost its revenue and cash flow in future quarters.
As the MAX grounding is set to continue through September, Boeing could report another dismal quarter. In the third quarter, analysts expect Boeing’s revenue and EPS to fall 19% and 36%, respectively, year-over-year.