Dow component The Boeing Company (BA) rose over 4% Thursday after RBC Capital initiated coverage of the Seattle-based airplane maker with an "outperform" rating. The bank's equity analyst Michael Eisen says he sees value in Boeing stock beyond the COVID-19 pandemic as commercial air travel rebounds relatively quickly.
"We see a favorable Risk/Reward profile in the stock," Eisen wrote in a research report cited by Barron's. The analyst expects double-digit growth in air traffic between now and 2024 to provide Boeing with tailwinds over the next few years. Furthermore, he believes that Boeing's grounded 737 Max will be flying again in the third quarter, helping to ramp up profits. The troubled jet has weighed heavily on the stock after it was sidelined in March last year following two fatal crashes. Eisen set a 12-month price target on Boeing shares at $165, representing nearly 20% upside from Thursday's $138.80 close.
The stock broke out from a two-month falling wedge earlier this week, with its price also closing above the 50-day simple moving average (SMA) in yesterday's session. Swing traders could look to play an initial move to the top of the wedge pattern at $186.50, followed by an eventual test of the January swing low at $300.93. Manage risk by placing a stop underneath intermediate support at $125.
Other stocks in the aerospace sector that manufacture and supply commercial aviation equipment rallied after RBC's upbeat view on Boeing. Let's take a closer look at two in particular.
Raytheon Technologies Corporation (RTX)
Raytheon Technologies Corporation (RTX) provides advanced systems and services for commercial, military, and government customers. The $91.06 billion company – formed through the merger of United Technologies and Raytheon – reported first quarter adjusted earnings of $1.78 per share to deliver a bottom-line surprise of 60.36%. A strong performance during the period from the aerospace giant's aircraft engines and auxiliary power systems business drove the better-than-expected result. Although Raytheon stock trades 35% lower year to date, it has gained 11.59% over the past week as of May 22, 2020. Raytheon also issues a 3.29% dividend yield.
Raytheon shares tracked lower within a tight falling wedge between mid-April and mid-May before breaking above the pattern's top trendline on Monday. Moreover, a bullish crossover of the moving average convergence divergence (MACD) line above its signal line confirms the breakout. Those who take a trade should place a stop under Monday's low at $55.52 and set a profit target near key horizontal line resistance at $71.
TransDigm Group Incorporated (TDG)
With a market capitalization of $20.25 billion, TransDigm Group Incorporated (TDG) supplies aircraft components through three segments: Power & Control, Airframe, and Non-aviation. The company, which generates about 70% of its sales from commercial aerospace customers, disclosed second quarter earnings per share (EPS) of $5.10, easily outpacing Wall Street estimates of $3.83 per share. The figure also increased by 22.6% from the year-ago quarter. As of May 22, 2020, TransDigm stock has tumbled 33% on the year but has bounced back 22% in the past month.
Since dropping down to around $200 in March, the shares have traded within a clearly defined symmetrical triangle as investors remain undecided over the stock post-pandemic. Price has edged above the pattern in recent sessions – a move that could trigger a short-covering rally, given that about 7% of the airplane equipment maker's stock float is held short. Traders who enter at current levels should think about booking profits near $475, where the stock may run into resistance from the lower trendline of a previous trading range and the 200-day SMA. Guard against a failed breakout by cutting losses if price closes beneath the May 18 low at $344.64.