Boeing share price rises on Iranian shootdown assertions

Stocks of US aircraft manufacturer Boeing Co managed to climb back up 2.5% on Thursday (09 January), following a share price dip the morning after a 737 crash in Tehran, Iran.

The aviation company had initially lost over 2.1% of its market capitalisation in early trade on Wednesday morning, after it was reported that Ukraine International Airlines Flight PS752 – a Boeing 737-800 that was carrying 176 passengers and crew, had crashed shortly after take-off due to a technical issue.

Then on Thursday morning, US and Canadian intelligence officials said it is ‘highly likely’ that an Iranian anti-aircraft missile strike had shot the plane down, after mistakenly identifying it as a threat.

Following the comments, Boeing share price rallied to US$341.73 at around noon time – close to pre-accident levels.

Third 737-related incident in 15 months

This is the third 737-related incident for Boeing, following the twin disasters of the 737 Max in October 2018 and March 2019 that claimed a total of 346 lives on board Lion Air Flight 610 and Ethiopian Airlines Flight 302.

Both crashes had prompted aviation authorities globally to ground the 737 Max series. As of January 2020, Boeing has suspended all production of the 737 Max.

Prior to the accident, the aircraft maker’s stock value had been on a comeback trail. Share price had gained 3.5% in the first trading week of 2020 alone, from the five-month low point of US$325.76 on 31 December 2019, although market analysts say rallies at the start of the year are not unusual.

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Bumpiness ahead for share price?

This latest crash could affect Boeing’s share price not only in the short haul, but also potentially spill over into the rest of the year.

If previous investor reactions are any indication, Boeing’s market value could be in for a harder landing. Following the 29 October 2018 incident, the aviation giant also saw its market capitalisation plummet by US$33 billion.

Panic was once again in the air with the Ethiopian crash that not only took down with it 157 lives, but over ten percent of Boeing’s share price. The result was a loss of over US$25 billion in market cap.

This setback has come just as market experts are starting to view Boeing as a comeback stock, after what has been an inconsistent 2019 filled with some highs and many lows.

Burkett Huey, Associate Equity Analyst at Morningstar Inc, wrote on 23 December 2018 that Boeing still possesses a significant competitive advantage over other aviation players, giving the company a ‘wide moat’ rating.

‘Despite the current troubles with the grounded 737 MAX, we believe that structural barriers to entry in the aircraft manufacturing market and the substantial expense and difficulty required for customers to switch suppliers provide incumbents with intangible assets and switching costs will solidify their place at the top of the commercial aerospace value chain,’ he wrote in a note.

According to The Wall Street Journal, Boeing Co currently has a ‘hold’ consensus, with 14 brokerage firms out of 23 rating it so. Seven analysts gave the stock a ‘buy’, one to ‘sell’, and one on ‘overweight’. They also gave an average price target of US$373.32 per share.

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