Boeing's Setback Could Be Investors’ Big Opportunity: Here's Why

Key Points

• Breaking down the chart on Boeing stock reveals a potential buy opportunity for investors to consider.
• The market is willing to place a premium valuation on the company as EPS growth forecasts seem realistic.
• Boeing has one major catalyst in its pipeline, which could turn over half a trillion in revenue.

There are only so many businesses available in the stock market that can justify a monopolistic title or description. Even if investors come across the ones already out there today, they can never dream of buying them at a reasonable enough discount. These steep discounts only happen when the company has a negative streak of issues or media around it, such as Boeing Co. NYSE: BA today.

As the company has had to deal with several issues recently, from incidents regarding its manufacturing and supply chain to a strike from its workforce looking to unionize and threaten to stop working, Boeing stock can’t seem to catch a break lately. However, investors need to remember that uncertainty (not so much bad news) is what can kill a stock’s price and valuation.

Now that the worker strike has been settled, the company has created and submitted a new safety protocol and plan to be submitted to the Federal Aviation Administration (FAA). At the same time, the costs and effects that Boeing will absorb from these strikes are also forecasted and reasonably settled, meaning the markets have more certainty as to where the company could be headed next, leaving the worst price action behind.

Analyzing Boeing Stock’s Chart to Uncover a Hidden Buy Opportunity

Looking at Boeing in a daily chart for recent years will reveal multiple key factors. First, the stock has now come close to a strong support uptrend line. Now that it trades at a mere 58% of its 52-week high, it might mark the bottom of the cycle (or at least close to it).

Another key indicator to consider here is the Fibonacci retracements, as Boeing has now entered what is often deemed the “golden ratio” between the 62% and 78% retracement from a recent high. One last factor to consider as the stock approaches this key technical level is volume.

Price is merely an advertisement for markets to consider; volume is the gauge for investors to either confirm or deny whether the current price attracts or rejects new business. Just like a retail product that sees its price at a discount, new buying sprees signify acceptance and demand.

The fact that Boeing stock’s volume has risen from four million shares on the way down to 18 million shares as it reached the Fibonacci ratio and support trendline, investors can safely assume that markets believe this price to be well below value.

Now, investors need to consider where Boeing stands in relation to peers in the aerospace sector, such as Lockheed Martin Co. NYSE: LMT and Northrop Grumman Co. NYSE: NOC. Boeing’s positioning will reveal how the market feels about the stock at this steep discount.

Wall Street and Market Sentiment Align in Favor of Boeing Stock

Two metrics can be used to measure where a stock stands against its peers: forward P/E ratios and earnings growth forecasts. In this case, Boeing’s benchmark is a forward P/E ratio of 45.5x and an earnings per share (EPS) growth forecast of over 180%. Analysts expect the company to swing from a net loss of $4.26 a share to a net gain of $3.42.

In comparison, Lockheed Martin stock trades at a forward P/E of 19.9x, 56% below Boeing. Analysts forecast only 8.3% EPS growth for that stock in the next 12 months, justifying the market’s willingness to overpay for Boeing stock, which has the potential to deliver above-average growth.

Northrop Grumman trades at a similar discount of 59% to Boeing as the stock is valued at an 18.8x forward P/E ratio. Wall Street has landed on a 10.4% EPS growth forecast in the next 12 months, once again justifying the premium Boeing stock commands today.

Leaning on Boeing's bullish tendency, the UBS Group has set a $240 price target, daring the stock to rally by as much as 53.9% from its current price.

Key Fundamental Trends Poised to Drive Boeing’s Potential Upside

Boeing stock’s investor relations website will reveal one major trend standing ahead of the company, the same one that could be leading markets to pay a premium for the stock. Starting with the company’s latest quarterly earnings, investors will see a backlog of orders valued at up to $516 billion today.

But this backlog is set to come from an unlikely buyer: China. Boeing reports that travel trends in mainland China could grow at 5.2% per year, and considering the vast population in China (with the fastest-growing middle class), this could be the ideal market for Boeing to tap into.

The company expects to see orders of up to 8,830 new airplanes for the next 20 years. They even quote a Beijing newswire saying that China will more than double its commercial airplane fleet by 2043 as its aviation industry expands. While this catalyst may be way down the line, markets are often forward-looking and might start pricing in these events at today’s prices.