Boeing shares (NYSE:BA) fell 7% on Tuesday, September 3, underperforming rival Airbus, which lost 4%. The decline in BA stock is primarily due to the recent downgrade by one of the leading Wall Street research firms. Boeing is struggling with delays in increasing production. The analyst who downgraded BA stock stated that the company’s $10 billion cash flow target could be delayed by two years. In addition, the company may need to raise $30 billion in fresh capital to develop new products – a difficult task since it already has a huge debt load of $45 billion on its balance sheet. ⁽¹⁾

Even if we take a slightly longer-term look, BA stock has seen a notable 25% decline from $215 in early January 2021 to around $160 now, while the S&P 500 has risen about 50% during that period. The stock’s returns were -6% in 2021, -5% in 2022 and 37% in 2023 – worse than the S&P in 2021. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as evidenced by the HQ portfolio’s performance metrics.

Given the current uncertain macroeconomic environment around interest rate cuts and multiple wars, could BA face a similar situation to 2021 and perform worse than the S&P in the next 12 months – or will there be a recovery? From a valuation perspective, BA shares seem to have plenty of room for growth. We estimate Boeing’s assessment 210 USD per share, representing an upside potential of more than 30% from the current level of 160 USD. Our forecast is based on 1.6 times revenue for BAslightly lower than the average valuation multiple of 2.0 over the past five years. A slight decline in the valuation multiple from its historical average for Boeing seems justified given the current FAA restrictions and their impact on near-term profitability.

Boeing’s sales rose at a compound annual rate of 10.3% from $58.2 billion in 2020 to $77.8 billion in 2023. There is a huge demand for new aircraft due to the increase in global travel, and this trend is not going to change anytime soon. However, aircraft manufacturers record most of the revenue at the time of delivery, and with Boeing’s ongoing issues, the company’s revenues have taken a hit. For comparison, the company reported revenue of $33.4 billion in the first half of this year, down 11% year over year. In addition, the company’s operating margin deteriorated by 310 basis points to -5.3%. Lower revenue and margin erosion pushed the loss to $4.04 per share, up from $2.08 in the first half of 2023. We expect the company to report revenue of approximately $76 billion and an adjusted loss of $3.55 per share in 2024, compared to revenue of $78 billion and loss per share of $5.81 in 2023.

Although Boeing stock looks attractive from a valuation perspective, it will take a while for the company to return to a strong growth phase. The company manufactured 25 aircraft in July and plans to increase to 38 jets by the end of 2024. However, it could take the company well into 2025 to reach that goal. The longer the delay, the more it will weigh on the company’s profitability. Overall, Boeing is going through a rough patch, but much of that is already priced in, with the stock down 40% so far this year.

While BA stock could reach higher levels, it is helpful to see how Boeing’s competitors Comparisons of important key figures. You can find further valuable comparisons for companies in various industries at Comparisons with other providers.

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