Goldman Sachs Issues Out-of-Nowhere Upgrade to Boeing (BA)

If you were to make a list of things you didn't expect to see this morning, it might look a little mundane, featuring things like “toilet paper available for sale” or “an open shopping mall.” If you were looking for an upgrade to Boeing (NYSE: BA) stock, then you may want to check and make sure you're not psychic, because that's just what happened earlier as Goldman Sachs rolled out what may be one of the most unexpected market moves of the century—so far—in upgrading Boeing.

The Logic is Actually More Cogent Than You'd Think

If you're starting to wonder if Goldman Sachs issued this upgrade—which went from “neutral” to “buy”—from its offices in Wonderland, you likely won't be alone. But upgrade they did, and in a big way. Goldman upped its price target to $173, which represents a near-doubling of its current price at $99.86 as of this writing. The stock is already up significantly off its previous close of $95.01, and this in an environment where losses are nigh-universal and perhaps best described as “catastrophic.”

As for Goldman's reasoning on the sudden and unexpected about-face, it's largely related to the numbers. Boeing shares are down about 71% in year-to-date figures, which suggests a bottom is in sight. What's more, Goldman asserts that the current Boeing share price reflects “substantial fear”, and when the demand for air travel recovers—which hopefully won't be too far away from now—so too will Boeing. Finally, Boeing also has a “strong balance sheet” that will give it extra lift into a recovery phase.

An Optimistic View?

If you were to look at Boeing and believe that things couldn't get much worse, you'd likely be right. The company has already lost substantial value in the coronavirus crash, with the price not only down 70% percent on year-to-date figures, but also 80% from its highs seen back in 2019.

With Boeing actively calling for a bailout from the federal government—a $60 billion bailout too, at last report—it's worth wondering if maybe Goldman isn't behind the curve on this one. After all, several other commentators, like Dennis Dick at Benzinga PreMarket Prep, called for investors to avoid Boeing, suggesting that even a bailout of that size isn't likely to help.

A Bad Patch for Boeing

You have to give Goldman credit; it's seeing that things can't exactly get a lot worse for Boeing. The company has already bled off a lot of its value, and if it fell much farther it'd likely be out of business altogether. If air travel does recover—which it should once we get a handle on this coronavirus business—then it's a safe bet Boeing will make some recovery as well. A rising tide does lift all boats, after all, and 2019 is pretty much proof.

But there are larger problems for Boeing in particular that Goldman doesn't seem to be acknowledging. While there's a lot of fear in the market right now, and certainly that's having an impact on pricing, Boeing was a losing proposition in the closing days of 2019 as well. That's before coronavirus was even an issue in China, let alone the rest of the world. Just back in January, Boeing had completely shut down production on the 737 Max, one of its flagship brands. This news came out about the same time as news of further software troubles on the plane, which made the news that Boeing was also actively seeking out loans to give the company's cash picture a little extra kick. The departure of former CEO Dennis Muilenburg was dramatic, but the impact remains a bit unclear.

It's not that Boeing is necessarily in danger of complete closure, but even if Thanos were to snap his Infinity-Gauntleted-fingers and banish the coronavirus tomorrow, Boeing would still have a plane with more bugs than a termite mound and a cash profile that could use a shot in the arm. The coronavirus problems are really just icing on an already-terrible cake for Boeing.

That being said, it's also not out of line to project that a lot of the irrational exuberance, so to speak, has been boiled out of Boeing, and so gains from its current level could show up with coronavirus out of the picture. Goldman might be a bit too optimistic here, but some optimism might just be called for.