Will Boeing Stock Recover To Its Highs of Over $250?

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BA: The Boeing Company logo
BA
The Boeing Company

Boeing stock (NYSE: BA) currently trades at $229 per share, around 10% below its level in March 2021, and it seems like it can see higher levels over time. Boeing saw its stock trading much lower at around $137 in June 2022, just before the Fed started increasing rates, and is now 67% above that level. This can be attributed to a couple of factors. First, there has been a strong growth in air travel after COVID-19-related demand declines and supply-chain issues, and second, a gradual rise in the production of aircraft. Boeing likely delivered over 500 planes last year, and the number is expected to grow sharply in the coming years. This has kept its stock buzzing. However, BA stock plunged over 10% this week after the incident of the cabin side panel detached midair on the Alaska Air (Boeing 737 Max 9) flight 1282. Following the incident, the Federal Aviation Administration grounded Boeing 737 Max 9 aircraft, mainly run by Alaska and United. [1]

Looking at BA stock returns over a slightly longer term, it has seen little change, moving slightly from levels of $215 in early January 2021 to around $230 now, vs. an increase of about 25% for the S&P 500 over this roughly three-year period. Overall, the performance of BA stock with respect to the index has been lackluster. Returns for the stock were -6% in 2021, -5% in 2022, and 37% in 2023. In comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BA underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector, including CAT, UNP, and GE, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BA face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump? While the recent development will impact Boeing in the near term, we think investors can use the dip in BA to enter for solid gains in the long term, primarily due to the immense demand for the aircraft and Boeing’s endeavors to boost its production. Note that Boeing has a gigantic backlog of $469 billion (over 5,000 planes), and it expects more than 90% of the backlog to be converted to revenue by 2027. Returning to the pre-inflation shock level means that BA stock will have to gain around 18% from here, and we think it’s possible over time. We estimate Boeing’s Valuation to be $235 per share, marginally above its current levels of $230.

Our detailed analysis of Boeing’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
  • Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how BA stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Boeing and S&P 500 Performance During 2007-08 Crisis

BA stock declined from $107 in September 2007 (pre-crisis peak) to $31 in March 2009 (as the markets bottomed out), implying it lost 70% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $54 in early 2010, rising nearly 72% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Boeing’s Fundamentals Over Recent Years

Boeing’s revenue decreased from $76.6 billion in 2019 to $66.6 billion in 2022 due to production issues impacting its deliveries. Supply chain disruption and labor issues for some suppliers during the pandemic further added to its woes. Boeing’s loss per share expanded to $8.30 in 2022 from a loss of $1.12 per share in 2019.

However, this trend reversed in 2023 with a rise in deliveries. For the nine-month period ending Sep 2023, Boeing reported sales of $56 billion, up 20% y-o-y, primarily driven by a 40% rise in commercial airplanes revenue.

Does Boeing Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Boeing’s total debt more than doubled from $27 billion in 2019 to $57 billion now, while its cash increased from $9 billion to $15 billion over the same period. The company also garnered $6 billion in cash flows from operations in the last twelve months. Given its cash cushion, Boeing appears to be in a comfortable position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe BA stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and, more importantly, the ongoing issues related to the grounding of the 737 Max 9 aircraft are some of the risk factors that could weigh on its stock in the near term.

While BA stock can see higher levels, 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.

 Returns Jan 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 BA Return -12% -12% 47%
 S&P 500 Return -2% -2% 110%
 Trefis Reinforced Value Portfolio -2% -2% 593%

[1] Month-to-date and year-to-date as of 1/9/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. FAA Orders Grounding of Some Boeing 737 MAX 9 Jets After Emergency Landing, Alison Sider, Jan 7, 2024, The Wall Street Journal []