Is Boeing Stock About to Soar Higher?

Key Points

• Boeing is still in play despite its recent scandals, cash burn, and anxious customers.
• The airline industry's fundamental momentum remains intact, and Boeing's backlog is as significant as ever.
• Analysts are projecting an EPS growth of over 1,000% in the coming years based on market valuations and price targets. 

Some stocks are undeniable pillars in their respective industries, and sometimes even for an entire economy. Shares of Boeing Co. NYSE: BA saw little change after it reported its first quarter 2024 earnings results, arguably the most important earnings report of the year as it set the tone for the stock. 

Despite a lack of reaction from the market, investors should not overlook Boeing’s potential upside, which is still present regardless of all the recent scandals. The stock hasn’t been itself in the past few years. With safety issue after safety issue - its most recent involving a Boeing 737 Max plane operated by Alaska Air – investors may have turned away from this essential air travel player. 

However, this year, Boeing may have all the necessary components to make a comeback. The company’s first-quarter results reiterate Wall Street’s current sentiment for the stock. 

Interest Rate Cuts Could Result in More Exports

In their 2024 macro outlook report, analysts at Goldman Sachs predicted a manufacturing breakout. Investors can see this thesis at play by looking at the ISM Manufacturing PMI index over the past few months. The index reported its first month of expansion after contracting for more than a year. More so, February’s PMI reported a 6.4% jump in export orders for the United States.

In addition, the Federal Reserve could cut interest rate cuts as soon as September 2024 (according to the CME’s FedWatch tool). If this happens, a weaker dollar could make American exports more attractive to foreign buyers – resulting in more exports.

Boeing’s Momentum Is Still Intact

The departing CEO, David Calhoun, mentioned that the company’s goal of reaching an annual $10 billion in free cash flow may be delayed by six months, but will still be achieved in two years. 

Despite burning through $3.9 billion in cash, the impact from recent incidents and new order declines wasn’t as bad as investors thought it would be. Far from being in the clear, Boeing’s slower production is only a temporary bump in the road, as customers will inevitably need their orders filled. Airlines, about to see summer travel demand, could look to Boeing to fulfill their equipment orders. Even more so, travel demand may break out due to U.S. consumer sentiment reaching a three-year high and the prospect of lower interest rates making travel financing cheaper and more accessible for consumers. 

Naturally, investors may think that Boeing’s competitor, Airbus OTCMKTS: EADSY, would step up to take market share. While this is a reasonable assumption, Wall Street doesn’t see this playing out. Analysts expect Airbus's earnings per share (EPS) growth to be 23% while projecting Boeing's growth to be far superior at 1,762%.

Amid Challenges, Boeing Shows Resilience

Despite worsening public relations conditions, the company managed to narrow its loss per share to 56 cents from 69 cents a year prior. In the quarterly earnings press release, investors can also find a narrowing of $3.8 billion in inventories, meaning customers still chose to fly Boeing planes despite recent scandals.

More than that, management reported a backlog value of $529 billion derived from over 5,600 airplanes in the pipeline. Once the Federal Aviation Administration (FAA) clears Boeing’s manufacturing safety checks, a good percentage of these orders will inevitably be filled and booked as earnings. 

Markets value these future EPS projections at a forward P/E ratio of 27x, above Airbus’ 19.8x. Customers prefer Boeing planes, as evidenced by the 37% premium over its biggest competitor. In addition, Boeing stock trades at 63% of its 52-week high, a significant discount to Airbus stock, which trades at 93%.

Wall Street analysts assigned Boeing a consensus price target of $226.7. To prove these valuations right and give investors the gap they are looking for, the stock would need to rally by 34.3% from today's prices. 

As part of the Industrial Select Sector SPDR Fund NYSEARCA: XLI, Boeing is now riding the fundamental momentum in the industry and its price action. The industrial sector outperformed the broader S&P 500 by 5% over the past quarter, the same quarter when the manufacturing PMI showed its expansion breakout.