Boeing Co (NYSE: BA) shares are down 4% this week on reports the company has been telling customers its 737 Max likely won’t be cleared to fly until June or July, months later than it had previously expected. While the latest 737 Max delay is bad news for Boeing investors, one analyst said Wednesday it’s also bearish for General Electric Company (NYSE: GE).
Bank of America analyst Andrew Obin reiterated his Neutral rating and $12 price target for GE.
Obin said 737 Max suppliers are missing out on revenues while the grounding drags on. However, suppliers with aftermarket exposure, particularly GE and Honeywell International Inc. (NYSE: HON), may benefit from older planes replacing the grounded 737 Max.
“As margins are generally higher for aftermarket (versus original equipment), the bottom line impact may be less than the revenue losses would suggest,” Obin wrote in a note.
The good news for Boeing suppliers is that most of them have diversified businesses, with exposure to defense or other industrial customers.
The new mid-2020 timeframe Boeing is discussing is a far cry from the end-of-2019 target former Boeing CEO Dennis Muilenburg originally gave for the 737 Max. The Federal Aviation Administration said this week it's “following a thorough, deliberate process” to confirm the 737 Max is safe after grounding the plane back in March of 2019.
Looking ahead, Obin said GE investors should get more info on the impact of the latest 737 Max news when the company reports earnings on Jan. 29.
Long-term investors still have good reason to assume Boeing’s 737 Max problems are only temporary and will have no lasting impact on Boeing or its suppliers. However, after repeated delays, it’s understandable for them to be losing patience at this point.
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