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Analyst Explains Why Boeing's $4.9B Charge Announcement Is Encouraging

Analyst Explains Why Boeing's $4.9B Charge Announcement Is Encouraging

Boeing Co (NYSE: BA) announced Thursday afternoon it will take a $4.9 billion charge in second-quarter results as part of "considerations to customers for disruptions" related to the grounding of its 737 Max. Despite what appears to be a negative headline, several Street analysts explained why this is not the case.

The Analysts

Morgan Stanley's Rajeev Lalwani maintains an Overweight rating on Boeing with a $500 price target.

Credit Suisse's Robert Spingarn maintains a Buy rating on the stock with a $427 price target.

Tigress Financial Partners' Ivan Feinseth.

Morgan Stanley: $5B Charge Is Positive

Boeing's $4.9 billion charge is consistent with expectations but a few "unanticipated" comments from management skews Thursday's announcement positive, Lalwani wrote in a note.

First, Boeing said its "best estimate" for the 737 Max to return to the sky is early fourth quarter versus investor expectations ranging from the end of 2019 to the back half of 2020.

Second, Boeing made no reference to reductions in 737 Max output levels. The analyst said this reduces concerns of any near-term cuts to production or deliveries, which would have made a recovery to the company's goal of producing 52 or more planes per month difficult in the longer term.

In fact, management announced it expects to ramp production of 737 Max planes to 57 units per month in 2020. The comments should be viewed as "supportive and consistent" with expectations for a return to normalization by 2021.

Credit Suisse: Correction Is Overdone

Boeing's approximate charge in addition to a $1.7 billion increase in production costs is likely below the Street's current estimate, Spingarn wrote in a brief note. Also, management's commentary implies excess 737 Max aircraft which is currently stored will be "cleared over several quarters" after the plane receives the green-light to fly.

Tigress: Buy The Stock

Boeing's $4.9 billion or $8.74 per share charge in the second quarter is consistent with the company's "recovery plan" for its 737 Max jet which is now guided to come back online in the beginning of the fourth quarter, Feinseth wrote in his daily newsletter. The company also indicated the FAA is close to approving its Maneuvering Characteristics Augmentation System (MCAS) with software upgrades likely to be made by the beginning of September.

Boeing's stock "continues to hold up well" despite the 737 Max concerns so Thursday's announcement represents a "significant change" in the narrative. As such, investors may want to take advantage of the current "buying opportunity" at current levels.

Price Action

Shares of Boeing were trading higher by more than 4% to $376.62 at time of publication.

Related Links:

Analyst: Boeing 737 MAX Still On Path To Take Flight Again In 6-9 Months

FAA Meeting On Boeing's 737 MAX 'Good Enough,' Says Bullish Morgan Stanley

Photo credit: pjs2005 from Hampshire

Latest Ratings for BA

May 2021BernsteinUpgradesUnderperformMarket Perform
Apr 2021Credit SuisseMaintainsNeutral
Apr 2021Credit SuisseMaintainsNeutral

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