Boeing Stock Surges 14% Despite Recent Downgrades

With a 14% jump in Monday’s session, it felt like shares of Boeing (NYSE: BA) were single-handedly dragging the Dow Jones Jones Industrial index out of its recent flunk. Going into this past weekend, the benchmark index had shed close to 4% in just three sessions and was down 10% in just two weeks. While Monday’s impressive 2.3% bounce didn’t quite put the index back at post COVID-19 highs, it certainly helped to slow the trickle.

Boeing itself has been closely following the Dow Jones’ overall direction this past month and before Monday was down nearly 30% from its June high. While in normal times, this kind of decline in such a short space of time would be considered catastrophic in its own right, it has to be understood in the context of COVID-19.

In just three months from the middle of March, Boeing stock had rallied 160% so a little cooling and profit-taking is to be expected. While shares are still down 44% from their February levels, that’s a far cry from the 74% they found themselves down by during the dark days of Q1. For a $110 billion stalwart of the Dow, Monday’s double-digit percentage jump raised more than a few eyebrows.

737 MAX Recertification Begins

The big driver of the move was the news that the first certification flight of its haunted 737 MAX program took off from Seattle yesterday morning. It was the first of three expected to take place this week as test pilots put the 737 MAX through various flight maneuvers and emergency procedures. The goal here is for the Federal Aviation Authority to be satisfied with the changes to the plane’s automated flight control system. Boeing had found itself reeling from two high profile crashes in late 2018 and early 2019 that killed a total of 346 people and precipitated the biggest crisis the company has ever gone through.

Shares were already under pressure last year as investors walked away as a huge backlog of 737 MAX orders were canceled and 737 planes already in use were grounded en masse. The coronavirus pandemic at the start of 2020 added fuel to the fire as the travel industry shut down almost overnight and ground to a complete halt for weeks. Even as passenger numbers continue to trend in the right direction, the number going through TSA checks is still down upwards of 90% from this time last year.

Bulls Become Bears

Perhaps that’s what makes Monday’s move all the more surprising. Wall Street has been watching Boeing closely for months and must be thought to have a fairly good idea of what their share’s fair value is. Only last week, the stock took a one-two on the chin from two downgrades that said the recovery rally had run out of steam. Bernstein downgraded it on Friday from Outperform to Market Perform and gave it a price target of $165, right below where it traded for most of that session.

They pointed to a slower than originally forecasted recovery in airline traffic and plane deliveries while also at the mounting pressure the company is under to return 737 MAX pre-payments to airlines who never received the orders and are under huge pressure themselves. Interestingly, Bernstein also said that they saw "no evidence" that the 737 MAX’s re-certification by the FAA will happen anytime soon, despite rampant industry rumors. After Monday’s news and jump in shares, we can only assume there are a few awkward conversations happening in Bernstein HQ.

But even before Bernstein’s cut, Berenberg had come out negative on the stock last week and taken it down to a Sell from Hold rating with a price target of $150. Given Boeing’s stock fell close to 20% last week alone, they must have thought that momentum was with them. Analyst Andrew Gollan said at the time that “we still firmly believe the 737 MAX will feature in the market as the airline industry drags itself out of this crisis, but Boeing certainly has major product strategy issues to address.”

A 14% jump in a single day by any stock is a big reply to statements like that. A 14% jump by Boeing is an even bigger one. We’ll be watching closely to see what happens.