Source: PaxForex Premium Analytics Portal, Fundamental Insight
Boeing’s stock has taken a hit, down over 22% in 2024. It's been another tough year for the aerospace giant, with investors disappointed by the company's ongoing struggles. However, while Boeing’s present may seem bleak, there's a compelling argument for its future under the leadership of its new CEO, Kelly Ortberg. Let’s dive into the bear and bull perspectives on Boeing’s prospects.
The Bear Case: Challenges Abound
Boeing's troubles are far from few. Its flagship segment, Boeing Commercial Airplanes (BCA), has been plagued by quality control issues with the 737 MAX. Notable incidents, such as a door blowout on an Alaska Air flight, have forced the company to slow deliveries, focusing on enhancing safety and quality. Adding to the woes, Boeing recently grounded its 777X test fleet after a failure during Federal Aviation Administration (FAA) certification - a move that could further shake investor confidence.
In an effort to improve quality control, Boeing is acquiring Spirit AeroSystems, but this deal may require additional investments to bring Spirit’s operations up to par. The uncertainties don’t end with commercial aerospace. Boeing Defense, Space & Security (BDS) is also facing significant hurdles, including massive losses tied to fixed-price contracts, notably the Air Force One deal initiated during Trump’s presidency. If the defense sector's challenges prove to be structural, long-term earnings from BDS could be lower than anticipated.
Boeing also faces labor issues, as negotiations with the International Association of Machinists (IAM) over a new contract are underway, with the current one expiring in mid-September. The leadership transition hasn't been smooth either. Dave Calhoun, Boeing's former CEO, set ambitious goals - like a $10 billion free cash flow (FCF) target for 2025/2026 - but Wall Street remains skeptical, projecting just $4.8 billion in 2025 and $8.1 billion in 2026.
The Bull Case: A Fresh Start Under Ortberg
Despite the gloom, there's a case for optimism. Boeing's new CEO, Kelly Ortberg, brings a wealth of experience in managing complex operations. His track record includes leading Rockwell Collins and overseeing its integration with United Technologies, ultimately playing a key role in the merger with Raytheon. Bulls argue that Boeing’s bar is set so low that Ortberg has ample room to create significant shareholder value.
The company's valuation could make it an attractive buy. While few expect Boeing to hit the $10 billion FCF target, even the more modest $8.1 billion projection for 2026 would place Boeing at a reasonable price-to-FCF multiple of just over 13.
On the commercial front, there are signs of improvement. Boeing's 737 MAX deliveries are on the rise, with 158 orders placed by the end of July. The backlog of 4,741 unfilled orders suggests strong demand. Meanwhile, BDS is making progress, with management pointing out that the troublesome fixed-price programs account for just 15% of its revenue, while the rest of the division remains profitable.
There’s no denying that Boeing has a steep hill to climb. Investors might want to wait until Kelly Ortberg settles into his role, secures a favorable contract with the IAM, and potentially scales back the ambitious $10 billion FCF target. Evidence of progress at Boeing Commercial Airplanes, particularly hitting a delivery rate of 38 per month for the 737 MAX, would also instill confidence.
In the defense segment, a few quarters without significant losses would go a long way in reassuring investors. As Ortberg works to reset expectations, Boeing could become a more attractive investment opportunity.
As long as the price is above 165.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 172.02
- Take Profit 1: 180.00
- Take Profit 2: 185.00
Alternative scenario:
If the level of 165.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 165.00
- Take Profit 1: 161.00
- Take Profit 2: 150.00
