Boeing (BA) shares were trending south in the week’s first session after a China Eastern Airlines Boeing 737-800 with 132 people on board crashed in the province of Guangxi, China early Monday morning. The number of deaths has yet to be determined.
As one of China’s three biggest airlines, China Eastern’s safety record throughout the past decade has been good. BA delivered the 737-800 in 2015, and the model is an NG, the MAX’s predecessor. To date, more than 7000 737 NGs have been delivered by the A&D giant.
The investigation into the tragedy’s cause is just getting started, and it’s yet unclear what caused the plane to crash.
“That said,” noted Cowen’s Cai von Rumohr, “the leading causes of commercial air transport crashes tend to be maintenance issues, pilot error, or sabotage, not a manufacturing or design issue. And for a plane that is seven years old and has been in commercial service since 2015, it seems less likely, although not impossible, that the cause would be a design or manufacturing issue.”
Unless there was reason to suspect a common problem, Rumohr believes that under normal circumstances, following a crash, not all 737s would be grounded.
However, BA planes and crashes is a loaded subject. Following two fatal crashes in the space of six months, the 737 MAX was grounded between March 2019 and November 2020, before being recertified by the US authorities.
Given these issues, Rumohr suggests that until a design or manufacturing issue is conclusively ruled out as the cause of the crash, there is “some chance that consumers may not want to fly on a 737.”
“Hence,” says the analyst, “isolating the cause of the crash will be critical.”
Important data on what went wrong could be provided by the cockpit voice recorder, which should be easier to recover, given the plane went down in a wooded area rather than over the ocean.
All in all, Rumohr stays with the bulls, reiterating an Outperform (i.e. Buy) rating, while the $230 price target makes room for ~24% upside over the coming year. (To watch von Rumohr’s track record, click here)
Of the 18 analyst reviews posted during the past 3 months, 13 are to Buy and 5 say Hold, all coalescing to a Moderate Buy consensus rating. Going by the $256.18 average target, shares are anticipated to change hands for ~38% premium a year from now. (See Boeing stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
