An inflection is coming in demand for commercial aerospace. That’s great news, and a relief, for aerospace investors. And it led Bernstein analyst Doug Harned to upgrade Boeing and some of its peers Wednesday.
Harned upgraded Boeing stock, and shares of Boeing supplier Spirit AeroSystems and Boeing peer Airbus to Buy from Hold Wednesday.
His price target for Boeing stock goes to $279 from $252. Harned lifted Spirit Aero’s price target to $66 from $53, and raised the price target for Airbus shares to 142 euros, or about $165, from 121 euros, or $140 a share.
Boeing stock is up 5% in Wednesday morning trading. The S&P 500 index and Dow Jones Industrial Average futures are up 0.3% and 0.2%, respectively. Airbus stock is up 2.7% in overseas trading. And Spirit Aero shares are rallying the most with a 7.6% gain.
Harned made some bold calls with the upgrades. “Finally, global inflection,” he wrote, referring to demand for air travel in a Wednesday research report. “Is it time to party? We are not there quite yet, but the path now looks secure.”
Vaccines are giving him confidence. Harned showed how vaccine-penetration rates led to more domestic travel in the U.S. and Europe. U.S. air travel sits about 25% below pre-pandemic levels. Vaccine-penetration rates are now improving in other travel markets such as India and Japan, giving the analyst confidence that international travel demand will improve as domestic air-travel demand grinds higher.
Higher demand will translate into higher deliveries down the road. Harned, for instance is now modeling 57 deliveries of the 757 MAX jet per month by 2025, up from his prior estimate of 54 jets. That’s an example of how improving demand for travel works its way into Boeing’s—or any aerospace company’s—profit and loss statement.
MAX demand isn’t all about the commercial-aerospace recovery, though. The plane just reentered service in late 2020 after design changes following two deadly crashes. Chinese regulators are flying the plane again. That is an important step to recertify the aircraft for commercial service in China.
The MAX issues are hopefully fading investors. Covid, however, is still a big issue, but “with only a few exceptions—particularly in Africa—most countries should be open by April [2022], barring something unexpected, such as a very different new variant, which we do not expect,” added the analyst.
With the upgrades, about 58% of analysts covering Boeing rate the stock at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Spirit shares are more popular with bulls than that; about 65% of analysts rate the stock at Buy. Analysts are most bullish on Airbus, which has a Buy-rating ratio of 78%.
Airbus shares have been the best performer of the bunch with a 30% gain so far in 2021. SpiritAero stock is up about 10%, while Boeing shares have managed to gain 2%.