Here’s Why We Think Boeing Stock Is Undervalued At $170

Boeing (NYSE: BA) recently reported its Q1 results, with top and bottom lines above street estimates. The company reported revenue of $16.6 billion and an adjusted loss of $1.13 per share, compared to the consensus estimates of $16.2 billion in sales and a loss per share of $1.76. Although there are near-term headwinds for the company stemming from the ongoing 737 MAX issues, we believe BA stock remains undervalued. In this note, we discuss Boeing’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Boeing’s stock performance.  BA stock has faced a notable decline of 25% from levels of $215 in early January 2021 to around $165 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the decrease in BA stock has been far from consistent. Returns for the stock were -6% in 2021, -5% in 2022, and 37% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BA underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, clubbed with Boeing’s own 737 MAX issues, could BA face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, BA stock looks like it has ample room for growth. We estimate Boeing’s Valuation to be $228 per share, reflecting an upside of more than 35% from its current levels of $170. Our forecast is based on 1.8x revenues for BA, slightly lower than the 2.0x average value over the last five years. A slight decline in the valuation multiple from its historical average for Boeing seems justified given the ongoing safety issues and its impact on near-term profitability. We expect 2024 sales to be around $83 billion for the company and an adjusted loss of $0.56 per share, compared to $77.8 billion in sales and $5.81 loss per share in 2023.

Boeing’s revenue of $16.6 billion in Q1 was down 8% y-o-y, primarily due to a 36% decline in total commercial airplane deliveries. Looking at segments, global services segment sales were up 7%, and defense, space, and security revenue was up 6%. Commercial airplane sales plunged 31% y-o-y in Q1. The company didn’t provide any guidance for 2024 while it maintains its outlook for 2025-26.  For now, Boeing has reduced its production to under 38 airplanes a month to focus on improving the quality and safety systems. The company’s core operating margin stood at -2.3% in Q1 versus -2.5% in the prior-year quarter. Boeing’s adjusted loss of $1.13 per share in Q1 narrowed from a loss per share of $1.27 in the prior-year quarter.

The start of 2024 hasn’t been great for Boeing, with its stock plunging over 35% so far this year. This can primarily be attributed to an incident in which the cabin side panel detached midair on Alaska Air (Boeing 737 Max 9) flight 1282 on January 9, 2024. Following the incident, the Federal Aviation Administration grounded Boeing 737 Max 9 aircraft. Later, in February, one of Boeing’s suppliers found a new problem with fuselages on several unfinished 737 Max planes. These incidents have resulted in uncertainties and a delay in deliveries. Boeing failed in 33 of 89 product audits conducted by the Federal Aviation Administration (FAA) on 737 Max airplanes. ^[1] The fuselage is made by one of Boeing’s suppliers — Spirit AeroSystems. Boeing plans to acquire Spirit AeroSystems to address the quality issues and get on track for its 2026 production target of 50 airplanes a month. With mounting pressure on the ongoing 737 MAX issue, Boeing CEO – Dave Calhoun – will step down by the end of this year.

Although there are near-term headwinds for Boeing, its long-term growth prospects look solid, with a backlog of $448 billion, including over 5,600 airplanes. The company is likely to sort out its production issues and ramp up production for 737 aircraft in 2026. Furthermore, if the company succeeds in acquiring Spirit AeroSytems, it will likely bolster its aircraft production rate. Overall, we think that investors can use the current dip in BA to enter for robust long-term gains, especially in 2026, when the company will likely see increased deliveries and expand its profit margin.

While BA stock looks like it can see much higher levels in the long run, it is helpful to see how Boeing’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/28/2024
[2] Cumulative total returns since the end of 2016

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1. F.A.A. Audit of Boeing’s 737 Max Production Found Dozens of Issues, Mark Walker, The New York Times, March 11, 2024 [↩]