Should You Buy Boeing Stock At $140?

After a 33% fall year-to-date, at the current levels, we believe Boeing stock (NYSE: BA) looks undervalued. BA stock fell from around $208 in early January to under $140 now. The YTD 33% fall for BA is far worse than the -19% return for the broader S&P500 index.

Looking at the longer term, BA stock is down 58% from levels seen in late 2019. This marks an underperformance compared to some of its peers and the broader markets, with Lockheed Martin stock rising 7%, Raytheon stock up 1%, and the S&P500 index rising 20% over this period.

This 58% fall for BA stock since late 2019 was driven by: 1. Boeing revenue, which fell 20% to $61 billion over the last twelve months, compared to $77 billion in 2019, 2. the company’s P/S ratio, which plunged 45% to 1.3x trailing revenues, from 2.5x in 2019, and 3. a 5% rise in its total shares outstanding to 592 million currently. This means the company’s revenue per share declined 24% to $103 now, compared to $135 in 2018.

The revenue decline can primarily be attributed to the impact of the 737 Max grounding in 2019 and the Covid-19 pandemic on the company’s businesses, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis. Commercial Airplanes was the largest segment for Boeing, accounting for 42% of total sales in 2019, but the contribution dropped to 31% in 2021. Defense, Space & Security Systems is now the largest segment for the company, accounting for 42% of the total sales. Commercial Airplanes sales plunged 39% to $19 billion in 2021, compared to $32 billion in 2019. Even in Q1 2022, the segment sales were down nearly 3%. Boeing is struggling to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some of its suppliers further added to its woes.

Earlier this month, China placed a 300 airplane order worth $37 billion with Airbus, raising investor concerns over Boeing’s ability to penetrate further in an important market. This led to a 6% fall in its stock on July 5. Boeing also faces headwinds from the current weakness in broader markets. The S&P500 has now entered near bear market territory with rising concerns of slowing economic growth given the high inflation, Fed action, and supply chain disruptions.

Despite the headwinds stated above, there are some positives to look forward to. With the worst of the pandemic likely behind us, airlines are benefiting from a rebound in travel demand. This should result in an uptick in the company’s Commercial Airplanes business over the coming years. Boeing has a significant backlog of over 4,000 airplanes, and it will likely be able to resolve issues around production, driving its revenue growth over the coming years.

Also, we find BA stock to be undervalued currently and estimate Boeing’s valuation to be $203 per share, reflecting a significant 45% upside from its current market price of $140, implying that investors are likely to be better off buying BA stock in the recent dip for solid gains in the long-term. At its current levels, BA stock is trading at just 1.1x forward revenues, compared to the last three-year average of 2.3x, making the stock attractive from a valuation point of view.

While BA stock looks undervalued, it is helpful to see how Boeing’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Vicor vs. Williams Sonoma.

With inflation rising and the Fed raising interest rates, among other factors, Boeing stock has fallen 33% this year. Can it drop more? See how low Boeing stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 7/11/2022
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates