Key points
- Boeing is still in the game despite recent scandals, cash burn and anxious customers.
- The airline industry’s fundamental momentum remains intact, and Boeing’s order book is more significant than ever.
- Analysts expect EPS growth of more than 1,000% over the next few years based on market valuations and price targets.
- 5 stocks we prefer to Boeing
Some stocks are undeniable pillars in their respective industries and sometimes even for an entire economy. Shares of Boeing Co. NYSE:BA saw little change after reporting first-quarter 2024 earnings results, arguably the most important earnings report of the year as it set the tone for the stock.
Despite the lack of reaction from the market, investors should not overlook Boeing’s potential upside, which is still present despite all the recent scandals. The stock hasn’t been itself in recent years. With one safety issue after another – the most recent involving a Boeing 737 Max aircraft operated by Alaska Air – investors may have turned their backs on this essential player in air travel.
However, Boeing may have all the components it needs to make a comeback this year. The company’s first-quarter results reiterate Wall Street’s current sentiment for the stock.
Interest rate cuts could lead to more exports
In their report on the macroeconomic outlook for 2024, Goldman Sachs analysts predicted a turnaround in the manufacturing sector. Investors can see this thesis in play by looking at the ISM Manufacturing PMI index over the past few months. The index reported its first month of expansion after a contraction that lasted more than a year. Additionally, the February PMI reported a 6.4% increase in export orders for the United States.
Furthermore, the Federal Reserve could cut interest rates as early as September 2024 (according to CME’s FedWatch tool). If that happened, a weaker dollar could make American exports more attractive to foreign buyers, resulting in higher exports.
Boeing’s momentum is still intact
Outgoing CEO David Calhoun said the company’s goal of reaching $10 billion in annual free cash flow may be delayed by six months but will still be achieved within two years.
Despite burning through $3.9 billion in cash, the impact of recent crashes and declines in new orders wasn’t as bad as investors thought. Far from being clear, Boeing’s production slowdown is only a temporary bump in the road, as customers will inevitably need their orders filled. Airlines, poised to see demand for summer travel, may turn to Boeing to fill their equipment orders. Even more, travel demand could increase due to U.S. consumer sentiment hitting a three-year high and the prospect of lower interest rates that will make travel financing cheaper and more accessible for consumers.
Of course, investors might think that Boeing’s competitor, Airbus OTCMKTS: EASY, would come forward to gain market share. While this is a reasonable assumption, Wall Street doesn’t see this coming to fruition. Analysts expect Airbus’ earnings per share (EPS) growth to be 23%, while Boeing’s growth will be much higher, coming in at 1,762%.
Amid challenges, Boeing shows resilience
(As of 04/25/2024 ET)
- 52 week interval
- $159.70
▼
$267.54
- Price target
- $222.41
Despite worsening public relations conditions, the company managed to narrow its per-share loss to 56 cents from 69 cents a year earlier. In the quarterly earnings press release, investors can also see a $3.8 billion reduction in the stock, meaning customers are still choosing to fly Boeing planes despite the recent scandals.
On top of that, management reported a backlog of $529 billion from more than 5,600 airplanes in the pipeline. Once the Federal Aviation Administration (FAA) passes safety checks of Boeing’s production, a good percentage of these orders will inevitably be filled and booked as profits.
Markets value these future EPS projections at a forward P/E ratio of 27x, higher than Airbus’ 19.8x. Customers prefer Boeing aircraft, as evidenced by the 37% premium over its main competitor. Additionally, Boeing stock is trading at 63% of its 52-week high, a significant discount to Airbus stock, which is trading at 93%.
Wall Street analysts have given Boeing a consensus price target of $226.7. To prove these valuations correct and give investors the gap they are looking for, the stock would need to rally 34.3% from today’s prices.
As part of SPDR fund for selected industrial sectors NYSEARCA: XLI, Boeing is now riding the fundamental momentum of the industry and its price action. The industrial sector outperformed the broader S&P 500 index by 5% last quarter, the same quarter in which the manufacturing PMI showed its expansionary breakout.
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- gosoriomazzilli@gmail.com
Contributing author
Value stocks, Asian markets, macroeconomics
Experience
Gabriel Osorio-Mazilli has been with MarketBeat since 2023.
Areas of expertise
Value investing, long/short trading, options, emerging markets
Education
CFA Level I Candidate; Goldman Sachs Corporate Training; independent courses
Past experience
Analyst at Goldman Sachs, Associate at Citigroup, Senior Real Estate Financial Analyst