Boeing (BA) Last Update 8/3/21
Related: CAT LMT GLW GE
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Boeing
$250.71
Yours
Trefis Price
N/A
$217
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Boeing Company

VALUATION HIGHLIGHTS

  1. Commercial Airplanes constitute 46% of the Trefis price estimate for Boeing's stock.
  2. Defense, Space & Security Systems constitute 30% of the Trefis price estimate for Boeing's stock.
  3. Global Services constitute 23% of the Trefis price estimate for Boeing's stock.

WHAT HAS CHANGED?

With the travel & tourism industry observing a downtrend due to the fears of another infectious wave, Boeing is likely to observe a slow near-term demand for its aircraft. Moreover, the company is yet to restart the production of MAX aircraft later this year – a key factor weighing on the top line.

Per Q2 filings, Boeing is expecting to increase MAX’s production to 31 per month by early-2022. However, the stock is a good pick for long-term gains as new aircraft orders by United Airlines and Southwest Airlines indicate strong air traffic demand in the coming years.

With the lifting of the FAA’s ban on MAX aircraft, Boeing has been making requisite changes in its grounded fleet. The company has a 400+ aircraft inventory and is likely to ramp up the 737 MAX production during the latter half of the year.

While multiple coronavirus strains remain a near-term concern for the travel industry, Boeing’s low production numbers and declining inventory levels are likely to ease its heavy balance sheet.

For 2021, the company expects a stable demand for its defense and space divisions. However, vaccination progress will impact the commercial segment's results in the medium-term.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are the key drivers of Boeing's value that present opportunities for upside or downside:

Commercial Airplanes EBITDA Margin

Commercial Airplanes EBITDA margin stood at 17.4% in 2018. We expect the division's margins to decrease marginally (to 13%) over the Trefis forecast, due to the decrease in the production of the 737. If margins remain around the current level over our forecast period (the stiff price competition from Airbus and development or delivery delays of 737-MAX might restrict the increase in EBITDA margin), then there could be a potential downside of about 8% to Trefis price estimate for Boeing's stock.

Boeing's share of global commercial aircraft deliveries

Boeing commercial aircraft deliveries represented about 31.4% of global commercial aircraft deliveries in 2008. This figure rose to 37%-38% during 2009-11 and further to 43.7% in 2018 driven by production rate hikes of the 737, 777, and 787. Going forward, we expect Boeing's share of the global commercial airplane market to increase to about 46% by the end of the Trefis forecast period. If however, due to increased competition from regional jet makers Bombardier and Embraer, and entry of new players such as China's Comac, Russia's Irkut and Mitsubishi's Regional Jet, Boeing's market share remains at the current levels, then there could be a potential downside of around 15% to Trefis price estimate for Boeing's stock.

BUSINESS SUMMARY

Boeing is one of the two major manufacturers of 100+ seat aircraft for the global commercial airplane industry. The other major airplane maker in this category is Airbus. Boeing designs, develops, manufactures, sells, and services commercial jetliners such as the single-aisle 737, and twin-aisle 777, 787, and 747.

Apart from commercial aviation, Boeing has a defense contracting business. The company is the second-largest defense contractor of the U.S. government after Lockheed Martin.

To promote sales of its commercial airplanes, Boeing offers leasing solutions to airlines through its Boeing Capital Corporation (BCC) segment.

SOURCES OF VALUE

The commercial airplanes division is the largest contributor to Boeing's total value. The key factors responsible for this are:

Established position as one of the two largest aircraft manufacturers

Aircraft manufacturing requires significant upfront capital and research and development expenditure. Boeing has made these investments over the last several decades to establish itself as one of the largest commercial aircraft manufacturers.

A large number of airlines in the world operate Boeing airplanes. These airlines have a long, established relationship with Boeing as their airplane provider.

Other companies, including Embraer, Bombardier, Comac, Russian Irkut, or Mitsubishi that are looking to play a larger role as a commercial airplane manufacturer, face enormous competition from both Boeing and Airbus. In contrast, airlines have a working relationship with Boeing and Airbus for most of their airplanes. This track record and existing relationships provide both Boeing and Airbus with a significant competitive advantage over smaller and relatively new airplane makers.

KEY TRENDS

Aircraft demand is strongly tied to global economic growth

A decline in passenger and cargo traffic due to the global recession in 2009 adversely impacted revenues/margins for commercial airlines world over. This, in turn, affected aircraft demand. In recent years, as the global economy has steadily grown, airlines have seen their profits rise. Higher profits, in turn, have enabled airlines to place orders for new airplanes, growing results of airplane makers such as Boeing.

However, in the recent few quarters, the weak economy has forced air carriers and governments to delay or cancel orders for new aircraft, including the flagship 787 Dreamliner. This trend is likely to reverse towards the end of the decade.

Expansion of low-cost airlines (LCC) is boosting growth in the single-aisle airplane segment

Low-cost airlines or carriers (LCC) are fast expanding around the world. They provide an alternative to other modes of transportation, such as railways.

LCCs typically use single-aisle aircraft such as Boeing's 737 and Airbus' A320. The growth of LCCs is primarily a consequence of increased liberalization in the commercial aviation industry that has reduced entry barriers for private players. This is especially true in the emerging countries of the Asia-Pacific region, where liberalization driven by the Association of Southeast Asian Nations (ASEAN) has boosted the growth of many LCCS. We expect regulatory hurdles in the commercial airline industry to continue to decline the world over, paving for growth of LCCs. And the expansion of LCCs will boost demand for single-aisle airplanes. The company estimates that there will be a demand for over 37,000 aircraft over the next two decades.

Unionized workforce

Unions represent over 40% of Boeing's total workforce. The company experienced a workforce stoppage in 2008 due to the IAM (International Association of Machinists and Aerospace Workers) strike. Similar stoppages in the future have the potential to significantly impact the business through delays in production and the development of Boeing's products and services.

Boeing's defense business is highly dependent on the U.S. military spending

Boeing generates about 80% of its defense, space, and security (DSS) division revenues from the US government through its various agencies such as the Department of Defense and NASA. Owing to this high degree of dependence on the U.S. government, Boeing is vulnerable to any cuts in the government's military spending.