- Boeing‘s stock was down slightly after President Donald Trump announced the grounding of the 737 Max aircraft.
- Shares were holding their own given wide expectations of a grounding and limited visibility on how business will be impacted.
- Boeing’s stock was already down 17% from the 2019 highs.
- Watch Boeing trade live.
Boeing’s stock gained 0.46% Wednesday after President Donald Trump announced the grounding of all 737 Max aircrafts. The emergency order was announced after widespread calls by politicians on both sides of the aisle to cease flights of the aircraft until further investigation.
Upon hearing the news of the 737 Max’s grounding, investors might have expected Boeing shares to fall sharply. Boeing’s stock is still up 16% this year, after all. But there are a few reasons why the stock held up.
First, Boeing had a very strong start to the year. The company previously reported strong fundamentals in its fourth quarter earnings, driving its stock up 38% to its 2019 peak.
Shares then fell 17% from their March 1 peak prior to the grounding. And hedging costs for Boeing have also increased, indicating traders were already worried about the possibility of volatility.
Also notable, analysts have been saying that any grounding of the aircraft would likely have a limited impact on Boeing’s long-term business.
In a note published Wednesday morning, Morgan Stanley analyst Rajeev Lalwani said he expected any grounding of the planes to be temporary, and that the stock-price volatility surrounding the crashes represented a buying opportunity.
Airline orders are long-cycle and are subject to contract, making it somewhat difficult to switch manufacturers. For these reasons, Morgan Stanley said the worst-case scenario was a need for corrective action rather than wholesale cancellations of the order book.
“Ultimately, we are of the view that implications are likely to be short-lived, covering weeks and months as opposed to quarters and years, pending further clarity on safety and any necessary fixes,” he wrote.
Lalwani maintained his “overweight” rating and $US500 price target – 32% above where shares were trading Wednesday.
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