Boeing Co (NYSE:BA) has been rising quietly beyond analysts’ expectations over the past few weeks. Boeing stock hit a one-year low on February 11, landing lower than $110.00 for the first time since 2013. Now, Boeing stock is comfortably cruising above $125.00, gaining some five percent and leaving the turbulence apparently behind.
Whether Boeing stock will return to its 2015 and all-time high of $158.00 this year is another question. Yet, the overall scenario for the company is bullish.
Boeing continues to win contracts, the latest being from United for 25 units of the 737 airliner at a value of some $2.0 billion. And that is merely a drop in the bucket, compared to the Boeing backlog.
Recently, a few analysts downgraded Boeing stock to “Hold” and cut its price target on “additional backlog risk due to increased airline investment in old aircraft, as oil prices have remained depressed.” (Source: “Lower Oil Prices Aren’t Deterring Qatar Airways Orders,” Investor’s Business Daily, March 9, 2016.)
Yet Boeing’s backlog is well over 5,700 aircraft and since the start of 2016, Boeing has received 49 net orders (new firm orders less cancellations) against 11 for Airbus. February, however, is leaner than its European competitor.
Meanwhile, while Boeing has improved its delivery times as production of the “787” continues to ramp up, the company has also made important market strategy decision—to enter a new market.
In recent years, Airbus created a new market niche—the New Midsize Aircraft (NMA)—with the “A320 Neo” family of aircraft. It fills the gap between wide-body and short-haul airliners that was once addressed by the Airbus 300 and low/mid-range versions of the Boeing 767. The 320 Neo is in the final stages of development and Boeing has so far offered only rumors of a competitor. (Source: “Boeing plans new aircraft go-ahead decision by end-year,” Flight Global, February 11, 2016; https://www.flightglobal.com/news/articles/boeing-plans-new-aircraft-go-ahead-decision-by-end-y-421802/.)
Boeing has its own potential offering. Since 2012, the Seattle-based plane maker, marketing studies in hand, suggested there was market potential in an airliner to fit between the “B737-900 MAX 9” and the smallest wide bodies, like the “B787-8.” Translated, this means that the market wants aircraft capable of serving 4,500–5,000 nautical miles—a typical route might be London to New York—and seating 220–280 passengers maximum. On such a route, use of the larger 787 or “777” or the Airbus “350” might be a waste of seats and fuel.
In short, Boeing wants to make a plane with flight characteristics and the range of a B767-200, but with the operating costs of a B737-800. Boeing’s CEO, Ray Conner, said that the company would likely approve the NMA project later this year. Technical challenges aside, it is essential for Boeing not to leave Airbus in a monopoly market position. (Source: “Boeing wrestles with options for new midsize jet,” The Seattle Times, March 2, 2016.)
The latter’s A321 Neo is proving to be an unprecedented commercial success, having already collected more than 1,100 orders. The closest equivalent, the Boeing 737 MAX 9, has received 224.
Boeing needed to address growing pressure from its historical rival Airbus. Given that, Boeing stock was the worst performer in the S&P Aerospace Index last month.
Analysts set a price target of $148.00 and it is looking rather credible now. At the current price, Boeing starts to look like a bargain. Boeing has an order book large enough to keep it busy with eight to nine years of activity. The company has two major challenges: ensuring it develops the industrial capacity to fulfill existing demand and developing new products to address new sources of market demand.