Should You Pick Boeing Stock At $190?

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BA: The Boeing Company logo
BA
The Boeing Company

Boeing stock (NYSE: BA) has seen a decline of 10% from levels of $215 in early January 2021 to around $190 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. This underperformance can be attributed to a 30% cut in its P/S ratio from 2.1x in late 2020 to 1.5x now. Much of the fall has come this year, with BA stock declining 25% year-to-date. The valuation multiple has been weighed down due to the ongoing 737 MAX issues. Our dashboard — Why Boeing Stock Moved — has more details.

Now, the decrease in BA stock has been far from consistent. Returns for the stock were -6% in 2021, -5% in 2022, and 37% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BA underperformed the S&P in 2021.

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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 GE, CAT, and UNP, 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.

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 recovery? From a valuation perspective, BA stock looks undervalued.

Boeing’s revenue of $77.8 billion in 2023, reflects a 34% rise from $58.2 billion in 2020. This can primarily be attributed to an over 2x rise in the Commercial Airplanes segment. Boeing’s Global Services sales rose 23%, while Defense, Space & Security sales fell 5% over this period. Commercial airplane deliveries rose from 157 in 2020 to 528 in 2023. The company’s core operating margin expanded from -24.3% in 2020 to -2.4% in 2023.

Boeing stock has seen a sharp decline after an incident in which the cabin side panel detached midair on Alaska Air (Boeing 737 Max 9) flight 1282 on January 9, 2024. Following the incident, the Federal Aviation Administration grounded Boeing 737 Max 9 aircraft. Last month, one of Boeing’s suppliers found a new problem with fuselages on several unfinished 737 Max planes. These incidents have resulted in uncertainties and a very likely delay in deliveries in 2024. Boeing failed in 33 of 89 product audits conducted by the Federal Aviation Administration (FAA) on 737 Max airplanes. (F.A.A. Audit of Boeing’s 737 Max Production Found Dozens of Issues, Mark Walker, The New York Times, March 11, 2024) The fuselage is made by one of Boeing’s suppliers — Spirit AeroSystems. Boeing reportedly plans to acquire Spirit AeroSystems to address the quality issues and get on track for its production target of 600 737 aircraft by 2026. This compares with 396 737 aircraft it delivered in 2023. With mounting pressure on the ongoing 737 MAX issue, Boeing CEO – Dave Calhoun – will reportedly step down by the end of this year.

We maintain our Boeing’s Valuation to be $259 per share, reflecting an upside of more than 35% from its current levels of $190. Our forecast is based on 2.0x revenues for BA, aligning with the average value over the last five years. Given the ongoing issues with 737 Max, it is likely that Boeing will not be able to meet its delivery targets this year. Despite the near term headwinds, the company’s backlog remains robust at over $500 billion. There is a massive demand for new airplanes amid rising travel, and the overall market is likely to remain under supplied. Moreover, given the sharp decline, much of the negatives appears to be priced in now. We believe investors can use the current dip in BA to enter for solid long-term gains.

While BA stock looks like it 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 Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 BA Return -7% -28% 21%
 S&P 500 Return 3% 10% 134%
 Trefis Reinforced Value Portfolio 1% 6% 651%

[1] Returns as of 3/25/2024
[2] Cumulative total returns since the end of 2016

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