China has responded to a series of new U.S. tariffs by implementing its own set of 25 percent tariffs on 106 U.S. goods, sending shock waves through the U.S. market. One of the hardest-hit stocks this week was Boeing Co (NYSE: BA), which declined by more than 4 percent Wednesday morning after aircraft were included on China’s new tariff list.
While Boeing stock recovered most of its losses Wednesday, it has slumped 5 percent over the past month on fears that China could target Boeing with retaliatory tariffs. China was responsible for more than 25 percent of Boeing’s 2017 aircraft deliveries.
Despite the negative market reaction to the news, analysts have said it is unlikely that China would go after Boeing too hard. Bank of America analyst Ronald Epstein says China needs Boeing’s business. China is expected to take 7,240 aircraft deliveries over the next 20 years to support its booming travel industry, and Boeing and Airbus are the only two large suppliers in the global market.
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“In our view, it will be difficult for China to support the strong expected air travel demand without buying Boeing aircraft,” Epstein says.
He says the worst-case scenario for Boeing would be for China to cancel its current orders and for Boeing to receive no damages for the terminated orders. In that scenario, Epstein says Boeing could lose 12 percent of its 2020 free cash flow.
However, the new tariffs are a far cry from cancellation of an entire order.
“We view the worst-case scenario as highly unlikely and thus we view the price move in Boeing stock as overdone,” Epstein says.
Bank of America economist Helen Qiao says Boeing investors and investors of all the other stocks being hit by the new tariffs shouldn’t assume the worst. Neither the latest round of U.S tariffs on 1,300 imported Chinese goods nor the new set of Chinese tariffs on 106 U.S. products has actually been implemented yet, leaving time for the U.S. and China to negotiate a more moderate trade policy before companies like Boeing are actually impacted.
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“We expect the final version of both the US and China trade measures to be more toned down relative to the initial announcement,” Qiao says.
Bank of America has a “buy” rating and $470 price target for BA stock.
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Boeing Co (BA) Investors Shouldn’t Panic Over Chinese Tariffs originally appeared on usnews.com
