After a string of major incidents and scandals, the aerospace giant’s prospects hang in the balance
Boeing (NYSE:BA) has dominated the business pages lately, mainly concerning the safety of its 737 planes and the resulting whistleblower allegations.
The aircraft manufacturer made headlines again on Monday after announcing that it had agreed a $4.7bn deal to buy parts supplier Spirit AeroSystems. The news was warmly received by the market, with the stock retreating just slightly.
However, partly thanks to the recent and ongoing scandals, Boeing stock is still down almost 30% YTD.
Several experts have predicted a major crash for Boeing stock, but there are hints of a turnaround for the aerospace giant.
Spirit acquisition – The ticket to delivery growth?
Boeing has faced quality control issues in the past, resulting in delivery delays. For instance, Boeing’s 737 Max was grounded for almost two years following two fatal crashes in 2018 and 2019.
Additionally, in January 2024, the FAA stopped the production of the 737 Max after an Alaska Airlines flight suffered a mid-air blowout of its cargo door earlier this year.
However, Boeing still has ambitions of growing its delivery numbers, with the Spirit acquisition highly likely to bolster this effort. This would significantly boost Boeing Commercial Airplanes’ (BCA) margins as the company clears its multi-year backlog.
Moreoverer, since the acquisition is an all-stock deal, Boeing can avoid using its precious cash reserves.
Following the news, investment banking firm Jefferies reiterated its buy rating on the stock with a price target of $270, representing a 45% upside to the current price. The analysis also noted that the deal might dilute Boeing’s earnings per share (EPS) for 2026, but that the benefits from the deal will be “priceless”.
Deutsche Bank also maintained a buy rating on the stock with a $225 price target. The bank noted that an equity-financed deal is better than a cash offer and that an equity offering would help move the share price up due to reduced liquidity risk.
Disciplined cash flow management
Boeing has also reported positive free cash flow over the past 12 months. Though the company has not paid dividends or repurchased its common stock for some time, it did repay over $5 billion in debt during FY23. This is indeed a sign of disciplined cash flow management.
In Q1, Boeing’s top and bottom lines were above Wall Street estimates. Still, revenue for the company was down mainly due to a decline in total commercial airplane deliveries. The company will be hoping to overcome this issue with the acquisition of Spirit.
We will get a better idea of the company’s plans when it reports its Q2 numbers towards the end of July.
Promising stock performance
Even though Boeing stock is down significantly from $215 in early January 2021 to about $185 now, it has still outperformed the S&P 500 in the last two years.
Boeing stock returned -6% in 2021, -5% in 2022, and 37% in 2023. The S&P 500 returned 27% in 2021, -19% in 2022, and 24%, suggesting Boeing underperformed the S&P in 2021 alone.
It is tricky to judge whether the stock will outperform S&P in 2024 considering the current uncertain macroeconomic environment, with high oil prices and interest rates on top of Boeing’s own 737 MAX issues. Still, several analysts believe the stock has ample room for growth.
Is Boeing stock a buy?
There is no denying that Boeing needs to address a few key issues in the short term – growing delivery backlog, potential charges from the Department of Justice related to the 2018 and 2019 crashes of the 737 Max aircraft, and the search for a new CEO – before it can pull off a turnaround.
However, Boeing is moving in the right direction, and while it would be fair to say that the firm faces near-term headwinds, its long-term growth prospects look promising.
Based on this, we think Boeing stock would be a sensible buy right now.
