What happened
Shares of Boeing (NYSE: BA) traded Monday nearly 5% on stimulating developments in the fight against COVID-19. Over the weekend, the Food and Drug Administration authorized a new treatment for patients admitted to hospital, and reports emerged that President Donald Trump could give a fax green light as soon as this fall.
A faster-than-expected end to the pandemic would be good news for murdered airlines, which in turn would be good news for Boeing. That’s good enough to jump stocks higher on Monday. As of 1 pm EDT, shares were up 4.75%.
So what
Boeing shares have lost almost half of their value so far this year because the aviation giant has to deal with a wave of cancellations and order cuts due to the coronavirus. Airlines have seen travel demand fall by 70% or more year over year; as a result, they now need fewer planes than they did just a few months ago.
Image source: Boeing.
Travel demand is likely to remain sluggish for as long as the pandemic is front and center, and possibly much longer. I’m worried it could be the second half of the decade before Boeing supplies out, and the stock is unlikely to regain lost height until that happens.
Boeing’s prospects would improve with each development that would shorten the resilience of COVID-19 and get passengers in the air sooner. The authorization of a new treatment, along with talks that we could be closer to a fax than assumed, prompted investors to offer Boeing shares in anticipation.
Well what
There is a lot of reason for caution here. For one, there is still a lot of uncertainty about COVID-19 treatments and faxes. We are a long way from knowing what will work, and even if a vaccine is approved in October, it will take months to spread it and for society to normalize.
Even if all goes well, Boeing’s airline customers will be saddled with billions in new debt during the pandemic and they will likely be wary of paying for expensive new aircraft. Even for COVID-19, the company had issues including the troubled 737 MAX, cultural issues raised by the MAX issues, and a product portfolio that did not adequately meet what airlines were likely to require.
Despite Monday’s positive headlines, I would advise caution when it comes to Boeing shares.
