Boeing’s turnaround will take time, but the stock offers upside for patient investors.
Boeing is essentially a self-help story
Lee Samaha: (Boeing) It’s been a tough five years for Boeing. If it wasn’t the grounding of the 737 MAX, it was the travel restrictions imposed on the populace by governments. If it wasn’t the travel restrictions and the financial pressure put on its airline customers, it was the difficulty of ramping up airplane production due to the ongoing supply chain crisis. If it wasn’t cost multi-billion dollar cost overruns and delays on fixed-price military contracts, it was soaring costs, labor shortages, and component unavailability in its defense business.
Those issues are evident in Boeing’s stock price being 52% off its all-time high in 2019. Still, despite all the bad news, Boeing has a lot of potential to improve profitability and cash flow in the coming years. The most significant opportunity comes from the execution on its multi-year commercial airplanes backlog. Its total backlog stands at almost 4,900 airplanes, with more than 3,800 for the 737 MAX – Boeing plans to hit a production rate of 50 a month on the 737 MAX by 2025/2026. Moreover, the environment is improving with airlines like Delta Air Lines continuing to beat expectations as the industry builds capacity. Meanwhile, a gradual elevation of the supply chain issues that have dogged the company in recent years will also lead to profit expansion.
Management plans to reach $10 billion in free cash flow generation between 2025 and 2026. That will go a long way to help it reduce its debt burden (currently $55.4 billion) built up in the last few years. If Boeing can merely execute its plans, then the upside to the $126 billion market cap stock is significant.
