MORGAN STANLEY: Boeing will steam ahead and shrug off China's tariffs

  • China’s tariffs won’t hurt Boeing, Morgan Stanley analyst Rajeev Lalwani wrote in a note to clients.
  • He believes the US’s trade tensions with China will cool down and that the tariffs, if enforced, would only apply to a small portion of Boeing aircraft deliveries in the country.
  • China is an important market for Boeing as it estimates between 15% and 20% of all aircraft deliveries through the year 2036 will occur there.

China’s retaliatory tariff’s won’t do too much harm to Boeing, a Morgan Stanley analyst said in a recent note to clients.

On Wednesday, China announced plans to slap a 25% tariff on more than 100 US goods, including aircrafts. The announcement was made in response to President Donald Trump rolling out tariffs on $US50 billion worth of Chinese goods.

Boeing dropped sharply on the news of China’s proposed tariffs, but Morgan Stanley equity analyst Rajeev Lalwani thinks shares will shrug off the concerns and steam ahead.

“The impact to earnings is limited,” Lalwani wrote. His price target is $US373 a share, about 12% above their current level.

He cites two main reasons for his bullishness.

“With an apparent desire from Chinese and US policy makers for a mutually beneficial outcome, our firm’s base case is de-escalation going forward, which in our view lowers the risk to Boeing,” Lalwani said.

And even if a trade war does happen, he thinks that Boeing is likely going to be sheltered from the storm.

“For Aerospace, the tariff would be levied on aircraft with an empty weight exceeding 15,000kg but less than 45,000kg,” he wrote.

“According to Boeing’s OEW (Operating Empty Weight) specification this range may include the 737-700 / 737 MAX 7 at~37,600kg / ~41,000kg. That said, we estimate the backlog of 737-700 / MAX 7 aircraft for China represents less than ~1% of the total, thus is less of an impact than our initial bear case.”

The Chinese market is an important one for Boeing. The company did $US11.9 billion of revenue in China during its fiscal year 2017, which accounted for 12.75% of its annual revenue.

And in its 2017-2036 outlook, Boeing said China will be home to between 15% and 20% of all aircraft deliveries during that time.

Boeing shares are up more than 13% this year.

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