Boeing (NYSE: BA), one of the world’s leading aerospace companies, has faced turbulent times in recent years, grappling with the fallout from the 737 MAX crisis, supply chain disruptions, and labor challenges. However, the company is showing signs of a robust recovery, making it an intriguing candidate for a long position. With a massive order backlog, improving financials, and a competitive edge in the aerospace duopoly, Boeing presents a unique opportunity for value investors. This analysis explores the reasons to consider a long position in Boeing, focusing on its undervaluation, strong fundamentals, the recovery of 737 MAX orders, and its competitive stance against Airbus. By blending fundamental and technical insights, we aim to provide a comprehensive case for why Boeing could be a strong pick for investors seeking growth and value in the aerospace sector.
Boeing’s Undervaluation: A Value Investor’s Opportunity
Boeing’s stock appears significantly undervalued, offering a compelling entry point for long-term investors. With a price-to-earnings (P/E) ratio of approximately 21.6, Boeing trades at a discount compared to the broader aerospace and defense industry, which often sees multiples above 28. This valuation gap is particularly striking given Boeing’s massive order backlog, valued at over $500 billion, which provides a clear runway for future revenue growth. Analysts estimate Boeing’s fair value at around $242-$275 per share, suggesting a potential upside of 14-42% from current levels, a sentiment echoed by recent upgrades from firms like Redburn-Atlantic, which raised its price target to $275 from $180, citing improving financials and production stability.
Boeing’s enterprise value of roughly 54 times its adjusted EBITDA reflects the market’s cautious stance, likely due to past challenges like the 737 MAX grounding and defense division losses. However, the company’s diversified portfolio, spanning commercial airplanes, defense, space, and global services, mitigates risk and supports long-term profitability. Boeing’s global services segment, which provides aftermarket support, generates steady cash flows, benefiting from proprietary access to spare parts and high switching costs for airlines. This segment’s resilience, combined with a recovering commercial aviation market, underscores Boeing’s undervaluation. The company’s recent $20 billion equity issuance, while dilutive, has bolstered its balance sheet, reducing the risk of a credit rating downgrade and providing capital to navigate operational challenges. For investors, Boeing’s current valuation offers a rare opportunity to invest in a wide-moat company at a discount.
Strong Fundamentals: A Foundation for Recovery
Boeing’s fundamentals are strengthening, driven by a rebound in global air travel and strategic operational improvements. The company operates in three key segments: commercial airplanes, defense, space, and security, and global services. Its commercial segment, which competes directly with Airbus, benefits from a duopoly in the large jet airliner market, characterized by high barriers to entry and durable intangible assets. Boeing’s defense business, despite past losses, is turning a corner, with improved contract management reducing the risk of cost overruns. The global services segment, leveraging proprietary designs and regulatory requirements, ensures steady revenue from aftermarket support.
Boeing’s backlog of over 5,000 aircraft orders, primarily for the 737 MAX and 787 Dreamliner, signals robust demand. Recent large orders from the UK, Qatar, and resumed deliveries to China highlight improving market sentiment and reduced trade risks. The company’s focus on stabilizing production, particularly for the 737 MAX, is critical. Analysts expect Boeing to reach a production rate of 38 planes per month for the 737 MAX by the third quarter, enhancing revenue and cash flow. Cost-cutting measures, including a 10% workforce reduction, are projected to save billions, while efficiency gains through supply chain optimization are improving margins. Despite a high debt load of nearly $50 billion, Boeing’s diversified revenue streams and backlog provide a buffer, positioning it to capitalize on the post-pandemic travel surge.
737 MAX Recovery: Unlocking a $50 Billion Opportunity
The 737 MAX, once a liability due to its grounding following two fatal crashes, is now a cornerstone of Boeing’s recovery. The narrow-body aircraft has seen a resurgence in demand, driven by airlines’ need for fuel-efficient, single-aisle planes to support point-to-point travel and fleet modernization. Boeing’s backlog includes over 4,000 737 MAX orders, representing a potential $50 billion in revenue. Recent regulatory approvals, including China’s resumption of deliveries, have alleviated concerns about market access, while production stabilization efforts are addressing supply chain bottlenecks.
Boeing’s focus on quality control and compliance with global regulatory standards has restored confidence in the 737 MAX. The company has cleared much of its inventory of completed planes, with deliveries accelerating to meet airline demand. For instance, Boeing delivered 479 jets in a recent year, compared to Airbus’s 661, but its net orders of 774 reflect strong market share in key segments. The 737 MAX’s fuel efficiency and lower operating costs make it a preferred choice for airlines facing thin margins, particularly in emerging markets where short-haul travel is growing. Boeing’s ability to scale production while maintaining quality will be critical, but the 737 MAX’s order surge signals a clear path to revenue growth, making it a key driver for a long position.
Comparison with Airbus: A Competitive Edge
Boeing’s primary competitor, Airbus, has outperformed in recent years, capitalizing on Boeing’s setbacks to lead in single-aisle deliveries and orders. Airbus’s A320neo family has a slight edge in fuel efficiency, and its stronger balance sheet, with a cash-to-debt ratio of 1.4, contrasts with Boeing’s higher leverage. However, Boeing is regaining ground. While Airbus delivered 661 planes and received 1,078 orders in a recent year, Boeing’s 774 orders and focus on wide-body aircraft like the 787 give it a competitive advantage in long-haul markets.
Boeing’s wide-moat rating, shared with Airbus, stems from the duopoly’s high barriers to entry, including technical complexity and regulatory hurdles. Unlike Airbus, which faces challenges with its A400M program, Boeing’s defense business is stabilizing, and its sustainability initiatives, particularly with the 787, align with industry trends. Analysts suggest Boeing’s stock has greater upside potential, with price targets indicating 30-42% growth compared to Airbus’s modest 5-10% upside. Boeing’s recent outperformance in net order value, driven by wide-body deals, and its focus on resolving safety concerns position it to reclaim market share. While Airbus remains a formidable competitor, Boeing’s recovery momentum and undervaluation make it a more attractive investment.
Technical Analysis: Signs of a Breakout
Boeing’s stock chart shows promising signs of a bullish reversal, supporting the case for a long position. After a prolonged downtrend, the stock has formed a cup-and-handle pattern, a bullish continuation signal indicating potential for upward momentum. The stock’s relative strength index (RSI) is in the neutral zone, suggesting room for growth without being overbought. Recent volume spikes, coupled with a stable share price over the past three months, indicate institutional accumulation and reduced volatility compared to the broader market.
The 50-day moving average is converging toward the 200-day moving average, potentially forming a golden cross, a strong bullish indicator. Support levels around $180-$190 have held firm, with resistance near $220. A breakout above this level could propel the stock toward analyst targets of $242-$275. While technical indicators should not drive investment decisions alone, Boeing’s chart aligns with its improving fundamentals, suggesting a timely entry point for investors.
Risks to Consider
Boeing faces several risks that investors must weigh. Operational challenges, including supply chain disruptions and a recent machinists’ strike, have delayed production. The defense segment remains vulnerable to cost overruns, and lingering reputational damage from the 737 MAX crisis could impact future orders. Macroeconomic risks, such as a potential slowdown in air travel demand, could also affect Boeing’s services business. Additionally, the company’s high debt load requires careful management to avoid further dilution or credit downgrades. However, Boeing’s backlog, diversified portfolio, and strategic focus on quality and efficiency mitigate these risks, making the reward potential compelling.
Final Thoughts
Boeing presents a strong case for a long position, driven by its undervaluation, robust fundamentals, and the recovery of 737 MAX orders. The company’s massive backlog, operational improvements, and competitive stance in the aerospace duopoly position it for significant growth. While Airbus remains a formidable rival, Boeing’s focus on wide-body aircraft, sustainability, and cost discipline gives it an edge in key markets. Technical indicators support a bullish outlook, with the stock poised for a potential breakout. Despite risks like supply chain challenges and high debt, Boeing’s diversified revenue streams and strategic recovery efforts make it a compelling investment. For value and growth investors, Boeing offers a unique opportunity to capitalize on a wide-moat company at a discount, with clear skies ahead for long-term returns.
Noshee Khan has transformed the financial sector with Trade Genie. As the driving force behind this innovative venture, Khan combines deep market insights with a mission to empower individuals. His unwavering dedication propels Trade Genie into new territories, offering aspiring traders vital knowledge, educational resources, and real-time market analyses. Khan’s commitment to making trading accessible has garnered widespread recognition, helping countless individuals improve their financial literacy and achieve independence.
Under Khan’s visionary leadership, Trade Genie bridges the gap between novice and experienced traders, fostering a vibrant community focused on knowledge sharing and refining trading strategies. As both a pioneer and mentor, Noshee Khan drives Trade Genie to success, inspiring confidence in those navigating the complex world of finance.
Discover a wealth of trading knowledge on the Trade Genie YouTube channel. Dive into our latest webinars covering essential topics for traders. Subscribe now for valuable insights and strategies to enhance your trading skills.