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- Two Stocks That Look Undervalued: Boeing
Two Stocks That Look Undervalued: Boeing
The share price of this powerhouse of the aviation industry has been slowly moving down from $230+ area in the late summer to the levels below $190 in the beginning of October. A thick fog of broad correction on Wall Street indexes prevents the investing crowd from detecting whether a landing strip for Boeing stock is already somewhere closely beneath the chassis, or this smooth descent may have larger space ahead. Nevertheless, Boeing capitalization now returned to its values of Christmas 2022, hence it significantly outstripped many other industrials and tech companies in a pace of decline during the recent months.
The situation looks increasingly abnormal, even though the famous plane maker has not generated profit since Q2 2021. The pandemic blow was painful, yet Boeing CEOs just came up in July with a more or less adequate and precise plan on how they were going to come back. The number of new orders, especially from Asian airlines, are growing during this year, while the regulatory troubles with 737 family planes are over. Boeing is also a prominent player in the U.S. defence industry. Therefore, its quarterly losses improved from more than $6 billion in Q3 2022 to $0.82 billion in Q2 2023, which was also less than many experts feared. Boeing revenue surplus is accelerating from $14 billion in the first three months of 2022 to $19.8 billion in April-July 2023. All of the above reasons are enough for Boeing stock to fly from its $200-220 range of the first half of the year to a peaking price of $243 after July's earnings report.
A 180-degree turn from a former uptrend happened after several investing funds and research companies downgraded Boeing to Hold from Buy in their portfolios. For example, the Centre for Financial Research and Analysis (CFRA) cut Boeing stock price target to $210 from $253, based on revision of earnings estimates to higher expected loss per share of $3.29 in 2023 and to smaller earnings per share (EPS) of $5.39 in 2024. As CFRA detailed, Boeing previously guided for potential deliveries of its family of 737 planes at 50 per month by the 2025-2026 period, but the company's own current guidance remained below its guidance levels of 2019. Some part of a downturn has been attributed to Boeing supplier issues with Spirit AeroSystem. JPMorgan's analysts slightly lowered their estimate to a $245 price target for this reason, yet this is still 30% above current price levels for Boeing.
Yet, even sceptics recognize that a long-term potential for aircraft demand is growing, as many estimates are saying that more than 75% of the 2022 global fleet may require replacement by 2042. This unveils new opportunities for Boeing, as well as its European rival Airbus. United Airlines has announced on October 3 that a significant expansion to its fleet is needed. The airline has ordered an additional 110 aircrafts, including 50 Boeing 787-9s and 60 Airbus A321neos. Deliveries are scheduled to be launched in 2028 to be finished in early 2030s. United Airlines also secured options for an additional 50 Boeing 787s and purchase rights for 40 more A321neos. Both Groups will continue to benefit from this. Even though the long and winding road may lead the share price of Boeing at first to a forced re-test of lower technical support levels like $170 or even $150, then a return at least to price targets between $220 and $240 seems to be a basic scenario for the airline industry giant.
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