Is Boeing Stock a Buy?

Despite all the problems in recent years, there is still a solid reason to buy Boeing (NYSE: BA) stock. After all, it is still one of only two truly global players in the commercial aircraft market and has an order backlog of $529 billion while still winning orders (125 net orders in the first quarter). Is this enough to justify purchasing the shares? Here's the lowdown.

Boeing's $10 billion target

Investors listen when management sets medium-term objectives. Once this happens, investors start to fill in valuation assumptions. Because everyone knows this, management tends to set targets that it can achieve, and investors keep a close eye on progress toward the targets.

When Boeing management laid out its $10 billion target free cash flow (FCF) in the 2025/2026 period, it is fair to say that everyone expected Boeing to meet the target. The debate was about the timing: early 2025 or late 2026?

Boeing will not hit the target

According to the consensus of Wall Street analysts (never the most critical audience), Boeing will miss this target and instead reach $9.3 billion in FCF in 2026. Analyst consensus indicates that Boeing fell behind on its 2023 plan, specifically by delivering only 396 Boeing 737s. aircraft, compared to the targeted 400 to 450.

Getting worse. The quality control issues and a high-profile incident on a Alaska Airlines The January flight led to the grounding of Boeing 737 Max 9 aircraft and only 67 deliveries of 737 aircraft in the first quarter. For reference, the $10 billion target assumed Boeing would achieve 50 deliveries of 737s each month in 2025/2026.

Nevertheless, Boeing management still believes it will reach the $10 billion target, with CFO Brian West recently noting: “We continue to expect that this target will take us longer than we originally planned and later into the '25 and ' 26 is primarily related to the 737 and 787 production delivery increases of 50 per month and 10 per month, respectively” based on the earnings call.

Person standing under the arrival/departure sign at the airport.Person standing under the arrival/departure sign at the airport.

Image source: Getty Images.

Five reasons to achieve the goal will be difficult

Unfortunately, there are still plenty of headwinds that Boeing must overcome before it gets to that point.

First, airplane slopes are tricky at the best of times. While the slowdown in deliveries will allow Boeing to overcome the supply chain problems dogging the industry, suppliers must also adapt to aggressive production jumps.

Secondly, there is the potential takeover of Boeing Spirit AeroSystems can reassure investors that one of its key suppliers (737 fuselages) is safe. Still, Spirit requires investment and has lost money in recent years. That will not benefit Boeing's FCF objectives.

SPR free cash flow chartSPR free cash flow chart

SPR free cash flow chart

Third, delivery delays may cause airlines to order Airbus or even Embraer (smaller planes), or pushing for heavier discounts from Boeing to reflect the effect of the delays on cash flow. In addition, delivery delays often require compensation payments to airlines.

Fourth, Boeing will begin summer negotiations with the International Association of Machinists and Aerospace Workers (IAM) on the extension of a contract that expires in mid-September. Due to previous layoffs, Boeing may struggle to negotiate as skilled labor is in high demand, not least because of the many layoffs that are causing workers to switch industries during the lockdowns.

The fifth – and perhaps the most crucial – point is that maintaining production quality requires significant investment. Boeing cannot sustain itself without ensuring production quality, and the company's management recognizes that ensuring production quality is a top priority. While the $10 billion budget target is negotiable, ensuring production quality control is not.

Are Boeing Stocks a Buy?

There's a case for the stock, but it's not strong for investors confident Boeing will hit its $10 billion FCF target by 2026. As such, most investors should avoid the stock until there is clarity on the above issues or until management adjusts its medium. term objectives.

Should You Invest $1,000 in Boeing Now?

Consider the following before buying shares in Boeing:

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group. The Motley Fool has one disclosure policy.

Is Boeing Stock a Buy? was originally published by The Motley Fool

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