I don’t think there’s any company that has suffered worse from the novel coronavirus than Boeing (NYSE:BA). Sure, several companies have gone bankrupt, such as J.C. Penney (OTCMKTS:JCPNQ) and more recently Hertz Global (NYSE:HTZ). But these were already deeply troubled organizations. Regarding the airplane manufacturer, despite its own problems, it still represented American economic and military might. To see Boeing stock crater like it has is remarkable.
However, the silver lining, at least on the technical front, is that when shares bottomed this year in the back half of March, they didn’t retest that low. Instead, Boeing stock established a higher floor at the $120 level, giving speculators a measure of confidence that its recovery narrative was credible. Additionally, some positive mainstream headlines came at just the right time for the beleaguered company.
First up, vaccine biotechnology specialist Novavax (NASDAQ:NVAX) announced that it had enrolled the first participants in its early stage clinical trial for an experimental coronavirus vaccine. Of course, this had huge implications for everyone as it demonstrated progress against the Covid-19 pandemic. Theoretically, such news would also boost consumer confidence.
This segues into the second factor supporting Boeing stock. With most states relaxing their social restrictions, millions of Americans responded eagerly. According to NBC News, Memorial Day weekend drew big crowds. Seemingly, most could care less about social distancing and protective measures like mouth coverings.
Further, air travel has seen a noticeable uptick since the pandemic lows. Therefore, some of the most robust performances came from airliners such as United Airlines (NASDAQ:UAL) and Delta Air Lines (NYSE:DAL). Naturally, this bodes well for Boeing.
Still, is this really a bankable rally for the aeronautics giant?
Pent-up Demand May Be Limited for Boeing Stock
On the surface, nearly every piece of the puzzle is moving favorably for Boeing. Worried travelers and consumers will eventually have wide treatment or vaccination options for Covid-19. Plus, the federal and state governments achieving general consensus toward economic reopening is a huge lifeline. Finally, the fact that millions have apparently gotten over their fear (or never had it) bodes well for business.
Nevertheless, I don’t believe these circumstances offer a truly convincing green light to buy Boeing’s stock. Before I would dive in, I need to see evidence that travel data isn’t just a one-off occurrence.
For starters, the media’s fascination with this past Memorial Day’s pedestrian volume doesn’t tell me much. In researching this story, I had not come across year-over-year comparisons for foot-trafficked events, such as beach gatherings. But even if the comparisons are positive, without a breakdown of automobile versus air travel, I wouldn’t know what that would imply for Boeing.
However, a relevant source is the Transportation Security Administration’s airport checkpoints. On the Friday before Memorial Day, just under 349,000 people traveled. While that’s a post-pandemic high, this passenger volume is down more than 87% year over year.
Simply put, that is staggering. Thus, without some reason for confidence that sustained catalysts will appear over the horizon, Boeing stock — along with the airliners — is enjoying a dead-cat bounce.
If you thought domestic travel was bad, think about what’s going on in terms of international travel. In April, Japanese government data estimates that only 2,900 foreign travelers visited the island nation. That’s a decline of 99.9%, which is essentially a complete evaporation of tourism.
Unless Boeing has an answer to this catastrophic loss of demand, I wouldn’t hold out much hope for Boeing’s stock.
Multiple Variables Ahead
Although the airplane manufacturer had a strong brand heading into this pandemic, it of course wasn’t without controversies. Operationally, the biggest concern is the plight (and the flight) of the Boeing 737 Max 8 jetliner.
As you know, two fatal accidents resulting from a defective stabilization program grounded the Max airplane. Compounding matters is that this airplane was built for, among other attributes, fuel efficiency. In the era of cheap fuel, efficiency isn’t exactly a top priority now. This suggests that airliners are less incentivized to buy the Max, if the pandemic didn’t already gut their enthusiasm.
Lastly, we don’t know if these state reopening protocols are truly safe. If recent history is any guide, ignoring public health guidelines altogether can lead to serious consequences. Let’s just say this — I wouldn’t be surprised if we see another wave of coronavirus, especially during the colder winter months.
If that happens, Boeing stock will probably tank again. With so many variables, the risk of getting this wrong is greater than the reward of getting it right.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.