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Boeing: Chinese Approval of 737 Max Will Boost Take-off
Stock Analysis & Ideas

Boeing: Chinese Approval of 737 Max Will Boost Take-off

Shares of Boeing (BA) surged Thursday to close at $202.38 as investors cheered the news of China’s approval regarding Boeing’s 737 Max planes.

According to a CNBC report, the Chinese regulatory body, Civil Aviation Administration of China (CAAC) indicated that Boeing will have to make certain changes to the 737 Max for the plans to fly again.

The report cited the CAAC statement on its website, “After conducting sufficient assessment, CAAC considers the corrective actions are adequate to address this unsafe condition.”

After this news, shares of Spirit Aerosystems (SPR), which makes the fuselages for these planes, also rose.

Boeing’s 737 Max aircraft had run into regulatory trouble in different countries after a string of accidents, resulting in the aircraft being banned. Seventeen regulators in various countries had lifted the ban since then, and China was the only country still yet to budge.

The CNBC report cited Boeing’s comment on the decision, “The CAAC’s decision is an important milestone toward safely returning the 737 MAX to service in China. Boeing continues to work with regulators and our customers to return the airplane to service worldwide.”

Dave Calhoun, Boeing president, and CEO had stated on a Q3 earnings call that while the company had completed a test flight of 737 Max in China during the third quarter, it was continuing “to work toward approval by the end of the year, with a resumption of deliveries to follow in the first quarter of next year.”

China is an important market for Boeing, and it estimates that Chinese airlines will likely require 8,700 new airplanes by 2040 that could be worth $1.47 trillion. What’s more, by Boeing’s projections, Chinese demand for widebody airplanes could make up 20% of its global deliveries by 2040. (See Top Smart Score Stocks on TipRanks)

Boeing expects that the commercial aviation services market in China is worth $1.8 trillion.

However, the company’s business in China has been impacted by strained U.S.-China relations. While Boeing continues “to support and monitor US-China trade relations” Cowen analyst Cai Rumohr believes that a “limited thaw” between U.S. and China was possible.

The analyst noted that China needs the Max aircraft while the U.S. needs “tariff exclusions to ease inflation and supply chain disruptions.” Rumohr added that “general trade in goods could be siloed from broader geopolitical & technology competition.”

Rumohr found the 737 Max approval “encouraging” but had already built that into his estimates. The analyst anticipates that “737 deliveries will ramp from ~280 in 2021 to 480 next year.”

As a result, the analyst remained upbeat with a Buy rating and a price target of $250 (23.5% upside) on the stock.

The rest of the analysts on Wall Street also echo Rumohr with a Strong Buy consensus rating on Boeing based on 13 Buys and three Holds. The average Boeing price target of $270.80 implies 36.5% upside potential to current levels.

Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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