Should You Buy Boeing While It’s Below $175?

Down just over 22% so far in 2024, it’s been another disappointing year for Boeing (BA -1.35%). Still, no one is thinking of buying Boeing for the company it is now. But there’s a strong case for buying the stock based on the potential of its highly-touted new chief, Kelly Ortberg, to turn the company around. Let’s take a look at the cases of bears and bulls.

The case of the bears

There’s no shortage of things to worry about with Boeing right now. Its main Boeing Commercial Airplanes (BCA) segment has experienced ongoing quality management issues with the 737 MAX. The issues, including a high-profile door explosion on a Alaska Airlines flight earlier in the year, prompted the company to slow deliveries to improve safety and quality.

Additionally, the recent and embarrassing news that Boeing has grounded its 777X test fleet after a failure just weeks after the Federal Aviation Administration (FAA) certification flight tests began will surely test investors’ patience .

As part of its efforts to improve quality control and ensure an adequate supply of airframes, Boeing is purchasing Spirit AeroSystems and may have to put more money to work in Spirit to improve its operations.

In addition, the bears also point out that Boeing’s challenges are not limited to commercial aerospace. The other major segment, Boeing Defense, Space and Security (BDS), continues to report huge losses, mainly due to troubled fixed-price development programs, including the Air Force One deal that President Trump signed with Boeing during his presidency .

If the bears are right and this turns out to be a structural problem in the defense industry — Lockheed Martin and RTX are just two defense companies struggling with fixed-price contracts — investors may have to discount BDS’s long-term earnings estimates.

Image source: Getty Images.

If all that wasn’t bad enough, Boeing management is negotiating a new contract with the International Automobile Association (IAM) to replace one that will expire in mid-September.

In the end, former Boeing CEO Dave Calhoun let Ortberg take over an operation that seems confused about where it’s going. For example, Calhoun never abandoned the $10 billion free cash flow (FCF) goal in the 2025/2026 target outlined in November 2022. Calhoun may have continued to believe in the target, but there were few takers on Wall Street, given the analyst Consensus for FCF is $4.8 billion in 2025 and $8.1 billion in 2026.

The case of the bulls

The best argument behind Boeing’s stock is a pragmatic one that accepts the company’s mistakes and highlights the attractive valuation and potential for improvement under industry veteran Ortberg.

Boeing’s new CEO has an impressive track record of managing highly complex operations. As CEO of Rockwell Collins, he acquired seats and cabin interior products from BE Aerospace. He later served as CEO of Collins Aerospace (a company created from the acquisition of Rockwell Collins by United Technologies). He led the company in its integration with Raytheon Company as part of the former’s merger with United Technologies’ aerospace and defense company.

Image source: Getty Images.

The bulls will argue that the bar has been set so low that Ortberg has plenty of opportunity to generate significant shareholder value. Going back to the FCF forecasts above, no one really believes in the $10B in 2025/2026, but they don’t have to accept it to make Boeing a good value. For example, the Wall Street consensus of $8.1 billion in 2026 would put Boeing at a price-to-FCF multiple of just over 13, based on the current valuation.

Meanwhile, Boeing’s deliveries are improving. Focusing on its flagship 737 MAX narrowbody, Boeing had 158 orders for the 737 MAX for the year to the end of July. The company continues to win orders and currently has 4,741 unfilled 737 MAX orders in inventory.

Data source: Boeing presentations.

At BDS, meanwhile, management says its troubled fixed-price development programs are passing key milestones in 2024 and account for just 15% of its revenue — the rest BDS is profitable.

A stock to buy?

There is a value case for buying Boeing stock. However, most investors can afford to be a little patient and wait for Ortberg to successfully resolve contract negotiations, likely to cut the $10 billion FCF target early in 2025/2026 and confirm that BCA is on track to hit a delivery rate of 38 a. month in the 737 MAX program. A quarter or two of multi-million dollar BDS tax-free would also help.

It will be easier to get behind the stock once at least a few of these things happen, and Ortberg resets investor expectations.