- Boeing has struggled since two crashes of its 737 Max aircraft led to the plane being grounded indefinitely.
- Still, analysts at Morgan Stanley think the company can recover and rally to $500 per share over the next 12 months.
- Morgan Stanley expects Boeing to post solid earnings growth, especially after the 737 Max is returned to service, which could be as soon as October.
- Watch Boeing Trade live on Markets Insider.
Boeing has had its fair share of bad news surrounding the 737 Max, the airplane with a software glitch responsible for two deadly crashes in the span of five months.
But some are still constructive on the aerospace company in the long run. The biggest bull on Wall Street right now is Morgan Stanley, has an overweight rating on the shares and a price target of $500 – about 38% higher than where shares are currently trading.
“Our top pick remains Boeing as we believe the 737 Max pause creates a buying opportunity while the aerospace cycle is steady,” Morgan Stanley analysts wrote in a Monday note. The combination of an “A-rated” balance sheet, attractive valuation, and the progress of Max upgrades has kept the firm positive on Boeing shares.
Boeing has a healthy balance sheet, the analysts wrote, which provides it “meaningful leverge to mitigate liquidity risks.”
The company has a A2 credit rating, which the analysts say gives them the ability to raise more debt capital if neccesary. Year to date, the company has raised more than $10 billion in debt while noting unused credit of more than $6 billion, the firm said.
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The company also has a compelling valuation, and its risk-reward profit going forward is favorable, Morgan Stanley said. Beyond 2020, Morgan Stanley expects Boeing to see annual earnings-per-share growth of 10% to 15%, above peers that will likely grow earnings less than 10%.
After the 737 MAX is returned to flight, Morgan Stanley believes that demand for the airplane will return to normal - something supported by the company's backlog. This will help Boeing return to growing earnings between 10% and 15% each year, analysts said.
A formal submission of the Max upgrades to the Federal Aviation Administration is expected in September, with the hopes that the plane will return to service in October or November, analysts wrote.
In addition, margins have improved in the 787 program, Boeing has grown its services wing, and it has a stable defense group, which should give "opportunities in a range of environments," analysts wrote.
The problems surrounding the 737 Max and getting it back into service have weighed on Boeing since a flaw in its software caused two fatal crashes that killed 346 people. It hasn't sold any 737 Max's in months as the plane has been grounded for more than half a year. The company has said that it doesn't expect the plane to return to service in 2019, and industry watchers also fear that the jet won't return to service until 2020.
The ongoing fallout has cost the company $5 billion. Boeing shares are down about 19% from the pre-crash peak in early March. Airlines that have 737 MAX planes in their fleets have lost hundreds of millions of dollars from flight cancellations.
Boeing stock is up more than 12% year-to-date.
