Is Boeing Stock Undervalued At $135?

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BA: The Boeing Company logo
BA
The Boeing Company

Boeing stock (NYSE: BA) has seen a 34% fall this year, underperforming the broader S&P500 index, down 20%. Even if we look at the longer term, BA stock, with -55% returns from levels seen in late 2017, has underperformed the S&P 500 index, up over 40%. Given the sharp decline this year, BA stock now looks undervalued at under $135, as discussed below.

This 55% fall for BA stock since late 2017 can primarily be attributed to 1. Boeing’s revenue falling 35% to $60.7 billion over the last twelve months, compared to $93.4 billion in 2017, 2. a 31% decline in the company’s P/S ratio to 1.3x trailing revenues currently, compared to 1.9x in 2017, partly offset by 3. a 1.5% fall in its total shares outstanding to 594 million. The decline in revenue and shares outstanding has meant that Boeing’s revenue per share plunged 34% to $102 over the last twelve months, vs. $155 in 2017.

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. The contribution of the Commercial Airplanes segment to the company’s top line halved to 31% in 2021, vs. 61% in 2017.

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Even in the first half of 2022, the segment sales were up less than 1%, despite a recovery in travel demand. Boeing is struggling to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some suppliers add to its woes.

Rising costs have resulted in a slight decline in the company’s operating margins to -2.7% for the last twelve months, compared to -0.4% in 2021 and 11.4% in 2017. Our Boeing Operating Income Comparison dashboard has more details.

Boeing also faces headwinds from the current weakness in broader markets. The S&P500 is in the bear market territory with rising concerns of a recession, given the high inflation and Fed action. That said, many of these negatives appear to be priced in, given the sharp fall in BA stock this year.

Boeing is expected to receive the Federal Aviation Administration approval for its MAX 10 aircraft next year, which will help it raise the deliveries from the average of 36 commercial airplanes per month in the first half of this year. Furthermore, as labor and supply chain issues subside over the coming quarters, the production and deliveries will likely see steady growth. The company’s backlog remains high at around 4,200 airplanes.

We forecast the top line to grow 12.8% to $70.2 billion in 2022. Assuming the current share count of 594 million (reported for Q2 2022), we arrive at the expected revenue per share of $118 for the full year 2022. Now, at its current levels, BA stock is trading at 1.1x forward expected revenues, significantly below its last three-year as well as last five-year average of around 2.3x, implying that BA stock is undervalued. Our dashboard on Boeing’s valuation has more details.

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 at how counter-intuitive the stock valuation is for Textron vs. Whirlpool.

With higher inflation and the Fed raising interest rates, among other factors, Boeing stock has fallen 34% 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.

 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 BA Return 10% -34% -14%
 S&P 500 Return 6% -20% 69%
 Trefis Multi-Strategy Portfolio 8% -21% 214%

[1] Month-to-date and year-to-date as of 10/4/2022
[2] Cumulative total returns since the end of 2016

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