With news of more embattled airlines, like United and Delta, grounding planes due to high fuel costs, aerospace stocks fell hard yesterday. Boeing (BA) fell 3.7%, while the S&P only dropped 0.6%.
But is there really cause for worry? Lehman’s Gary Chase says the concern is more perception than reality:
Despite a steady stream of deferrals, Boeing and Airbus say that demand for new planes will exceed the manufacturing capacity under all foreseen scenarios, and if this is correct, there would be little change in the revenues or earnings for most aerospace companies.
We expect the valuations of aerospace companies to stay under pressure, and under suspicion of missing their guidance until there is a better estimate of what exactly the high price of fuel will mean to demand for aircraft.
However, AmTech is less ambivalent. They panned Boeing along with all of aerospace:
There is very little support for the group [aerospace] in short-term. As we approach July, Power On, orders at the Farnborough Air Show and Q208 earnings reports should all be positive catalysts. However, in the short-term valuation does not matter and there is likely more downside is in the cards for the group before it settles out.
AmTech sees a potential near-term downside of 10% for Boeing.