Boeing stock rallies after aircraft maker puts a price tag on 737 Max debacle

Boeing Co. stock rose to its highest level in nearly a month on Friday after Wall Street breathed a collective sigh of relief as the aircraft maker put a relatively paltry price on the problems facing its 737 Max aircraft.

Boeing BA, +4.50% late Thursday said it expected a $5.6 billion hit in second-quarter revenue and pre-tax earnings. It also disclosed a $1.7 billion increase in costs to produce the aircraft.

Shares rose more than 3%, putting them on pace for their biggest one-day percentage increase since June 18 and on track for their highest close since June 26.

The shares traded as high as $375.11, their highest intraday level since June 26, and were the best performer on the Dow Jones Industrial Average DJIA, -0.25% which counts Boeing as a member.

The company is expected to report second-quarter earnings on Wednesday. The Max planes, the 737 family’s fourth and newest iteration, have been grounded worldwide since March following two fatal crashes less than five months apart.

The crashes are believed to share causes related to one of the planes’ anti-stall features and Boeing has been working on a software fix. The company hasn’t said how much it expects to spend on compensation for the families of crash victims.

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Analysts also clung to some good news in the announcement: A possible return to service by early fourth quarter, no further production cuts, and a goal of producing 57 Max planes a month in 2020, in line with Street forecasts.

The charges and other headwinds “do not come as a surprise and were in range with expectations,” analysts at Morgan Stanley, led by Rajeev Lalwani, said in a note Friday.

See also: Boeing stock ‘relief’ rally is helping keep the Dow positive

Analyst Ken Herbert took a different view, saying the charges were “substantially more than had been expected.” There’s also a risk to the fourth-quarter flight resumption time frame, he said.

“We believe there is still risk associated with the timing of the (return to service) globally as other factors such as trade, geopolitics, and customer concerns can still impact the RTS,” he said.

On the whole, however, ‘the initial investor reaction is a sigh of relief … and the charge helps to put a perceived limit on the financial impact of the grounding,” Herbert said.

Analysts polled by FactSet expect Boeing to report an adjusted profit of $1.79 a share on sales of $19 billion in the second quarter. That would compare with an adjusted profit of $3.33 a share on sales of $24 billion in the year-ago quarter.

Boeing has suspended its 2019 guidance after the grounding, and without the “full 2Q picture yet, there is a higher-than-usual level of uncertainty” in estimates at the moment, said Robert Stallard, an analyst with Vertical Partners.

“Max assumptions could still be optimistic,” he said.

Boeing stock is up 16% this year, compared with gains of 17% for the Dow Jones Industrial in the same period. Earlier this week, United Airlines UAL, -1.52% and American Airlines AAL, -1.96% announced more flight cancellations due to the grounding.

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