Stock of the Week
NYSE Symbol: BA
Industry: Aerospace and defense
Price as of 6/18: $237.35
The major averages are pulling back to end the month of June after a 13% rally to start the year. The economic numbers will continue to improve throughout the year as we exit the pandemic. However, high valuations, rising commodity costs and rising interest rates may put a hamper on gains going forward. Many travel and leisure stocks ran up ahead of the fundamentals and have traded sideways since March. This week, we will highlight a stock that should benefit from the rebound in travel and leisure but remains in a 35% correction over the last two years. The stock of the week is Boeing.
The last few years have been tough for Boeing with the grounding of the 737 Max planes following two crashes in 2019 and the COVID-19 pandemic causing a halt to commercial airline travel. As a result, Boeing had to suspend their dividend, cut costs and raise debt to get through the last two years. Going forward, the skies should continue to improve as air traffic rebounds to pre-pandemic levels. With the start of 2021, Boeing has started to pick up new orders. In the first quarter, Boeing received 224 new plane orders versus just 38 for rival, Airbus for their competing narrow-bodies. In addition, record highs in March and April for U.S. business jet flights and improving business travel in China suggests that businesses are eager to get back to business. This should also bode well for further plane orders.
Boeing still has a long road to recovery ahead of them, but the fundamentals should continue to improve over the coming years as profits and cash flow improve once again. A recent upgrade from the Cowen analyst expects Boeing to turn around its fundamentals going from losing money to free cash flow of $20 a share or $11 billion a year by 2024. Based on free cash flow, Barron's speculates that Boeing's stock could be worth $350 a share or nearly 50% upside. A lot of things have to go right for Boeing, but the low valuations provides potential upside to the stock over the coming years.