Company / Analytics

Analytics, 16 June 2021

Boeing stock rise on agreement on aircraft subsidy

Boeing shares rose after the U.S. and EU agreed to suspend aircraft tariffs for another five years related. The deal removes billions in punitive tariffs for the next five years – a key part of the reset in US-EU relations. Shares of Boeing and those of its suppliers rose slightly following the news.

EU-US Subsidy truce

The US and the EU have agreed on a truce in their long-standing dispute over subsidies to plane-maker Airbus and Boeing. The deal removes billions in punitive tariffs for the next five years – a key part of the reset in US-EU relations.

The trade dispute began in 2004 over aircraft subsidies but picked up steam during the Trump administration and spiraled out of the aviation sector and over into popular consumer goods. In 2019, the World Trade Organization ruled against the EU, saying its subsidies for Airbus were illegal. The U.S. put tariffs on $7.5 billion in European goods in response.

Then in 2020, the EU planned to impose tariffs on $4 billion American goods, including tobacco, orange juice, and cheddar cheese, after the WTO ruled that the U.S. gave its illegal subsidies to Boeing.

The agreement came as President Biden pressed Europe to focus on China’s growing economic influence while at the G7 and NATO summits. The two allies agreed to work together to challenge and counter China’s non-market practices in this sector in specific ways that reflect our standards for fair competition.”

Boeing stock rise

Shares rose 0.6% to close at 246.54 on the stock market today. Boeing stock is forming a cup with a handle base with a 258.50 buy point. Top supplier Spirit AeroSystems added 1.2%, and engine maker General Electric gained 0.5%. U.S.-listed shares of Airbus climbed 0.9%.

Boeing expects China to need 8,600 new aircraft through 2039, up 6.3% from its outlook in 2019. Boeing estimates that equates to $1.4 trillion new aircraft at list prices, but China has been developing its homegrown aircraft.

Boeing stock analysis

If you buy and hold a stock for many years, you’d hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while Boeing’s share price is up to 86% in the last five years, that’s less than the market return. However, more recent buyers should be happy with the increase of 24% over the last year.

Boeing wasn’t profitable in the last twelve months; it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last 5 years, Boeing saw its revenue shrink by 8.7% per year. The falling revenue is arguably somewhat reflected in the lackluster return of 13% per year over that time. That’s pretty decent given the top-line decline, and lack of profits. We’d keep an eye on changes in the trend - there may be an opportunity if the company returns to growth.

Boeing shareholders are up 24% for the year. But that was short of the market average. On the bright side, that’s still a gain, and it’s actually better than the average return of 15% over half a decade This suggests the company might be improving over time.

Should you buy Boeing stock?

The current consensus among 27 polled investment analysts is to buy stock in Boeing Co. This rating has held steady since June when it was unchanged from a buy rating.

The 23 analysts offering 12-month price forecasts for Boeing Co have a median target of 270.00, with a high estimate of 314.00 and a low estimate of 200.00. The median estimate represents a +9.82% increase from the last price of 245.86.

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