- Boeing is leading a premarket rise in the Industrials again as it’s set to get the all clear for its 737 MAX jet to take to the skies.
Boeing (BA, +7%) has been a familiar stock at the top of the Industrial sector (XLI, +1%), which has been enjoying outsize gains since Nov. 9 when Pfizer announced the first late-stage efficacy numbers for its vaccine candidate.
Cyclicals like Industrials, Energy (XLE, +1%) and Financials (XLF, +0.4%) are up this morning after Pfizer and BioNTech reported that their vaccine was 95% effective in the final clinical trial.
FAA Administrator Steve Dickson is expected to sign an order today lifting the flight ban on the 737 MAX, which was grounded in March 2019, as well as an airworthiness directive requiring new pilot training and software upgrades.
American Airlines plans to start flying the plane Dec. 29.
Boeing has been a big winner on the reflation trade following the encouraging vaccine numbers. It’s up 33% since Nov. 6, the last close before Pfizer’s first vaccine news. It’s up 45% month to date.
The stock is now in overbought territory for the first time since early June. The relative strength index hit 73.07 yesterday and will rise more today given the move before the bell.
While clearance of the 737 MAX is a big step forward, Boeing still has customers almost frozen by the pandemic and the next question is how many airlines will be prepared to take delivery of new aircraft.
Baird analyst Peter Arment, who raised BA stock to Outperform from Neutral with a Street-high price target of $306/share this morning, doesn’t see a return to positive free cash flow until the second half of 2021.
BA unlevered free cash flow (dig into Boeing’s full cash flow statement here)
“While the bridge to this recovery remains a challenge with production headwinds, higher leverage and FCF outflow in 2021, the recovery story will be multi-year requiring investors to look further out with each year improving y/y,” Arment wrote.
That Street-high target is still more than 20% below the 52-week high.
There “will be improvements in the balance sheet, but investors should be aware that while the imminent Boeing 737 MAX recertification offers opportunity it will take a bit longer before the balance sheet will be healthy again,” Dhieran Bechai wrote on Seeking Alpha on Monday.
Sector Watch
Autos are in focus ahead of trading, with discussion of the internet-of-cars and a U.K. deadline for the sale of new gasoline cars and vans, investors cat get a more granular look from the auto parts sector.
At 1:55 p.m. ET, Dana Incorporated (NYSE:DAN) will participate in Barclays 2020 Global Automotive Conference. Dana's Chairman and Chief Executive Officer James Kamsickas and Executive Vice President and Chief Financial Officer Jonathan Collins will provide a brief overview of the company and answer questions.
See more market-moving events at Seeking Alpha’s Catalyst Watch.