After Earnings, Is Boeing Stock a Buy, a Sell, or Fairly Valued?

Boeing BA released its fourth-quarter earnings report on Jan. 28. Here’s Morningstar’s take on Boeing’s earnings and stock.

Key Morningstar Metrics for Boeing

• Fair Value Estimate: $200.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Boeing’s Q4 Earnings

As announced ahead of time, Boeing delivered another quarter full of red ink, including $4.3 billion of combined quarterly losses in its commercial and defense arms that dragged the company to an operating loss of $10.7 billion for the year on revenue of $66.5 billion, down from $78 billion in 2023.

Why it matters: Boeing has undergone years of mishaps, mistakes, and misfortunes that would likely have brought a lesser franchise to its demise. As the company enters 2025, its commercial and defense units can turn around.

• Management’s plans for 2025 progress in the commercial jet business would have the 737 and 787 assembly lines operating normally around midyear, and monthly production volumes increasing by year-end. Both bode well for unlocking pent-up revenue and cash flows.
• In the defense segment, where aggressive bids on fixed-price contracts for military trainer aircraft, tankers, and replacements for the US presidential transport jet cost the company billions, we are less sure the worst is over, but the company claims it is “actively managing” its performance.

The bottom line: We have updated our forecast for near-term commercial jet deliveries and defense margins, resulting in an increase to our fair value estimate from $191 to $200 per share.

Coming up: Around mid-February, Boeing will announce commercial jet deliveries for January, setting the pace for 2025’s recovery. We expect the company to deliver 35 737s, 10 more than it produces in the month, leading to reduced inventory and the prospect of shutting down its “shadow factory” by midyear.

Fair Value Estimate for Boeing

We believe Boeing’s stock is slightly undervalued compared with our long-term fair value estimate of $200 per share, which represents an enterprise value 100 times our 2025 adjusted EBITDA estimate and 23 times our 2026 estimate. We think enormous special charges and fleet groundings are most likely behind Boeing, and we forecast one or two more years of hard slogging as the company clears up labor, manufacturing, and supply chain issues that hamper its production pacing. Our valuation includes healthy long-term global demand for Boeing’s products, successful scaling up deliveries, and eventually margins on its bread-and-butter 737 and 787 models in 2026-27.

The covid-19 crisis shocked the aviation industry and essentially halved global revenue passenger kilometers in 2020. Beyond the pandemic and lingering manufacturing headaches, we assume that a replacement cycle among most airlines will take place, and that the vast majority of fleet growth will be from narrow-body aircraft as an emerging-market middle class demands more short-haul and point-to-point medium-haul travel.

Read more about Boeing’s fair value estimate.

Economic Moat Rating

We think Boeing merits a wide moat because it benefits from durable intangible assets and switching costs. Although the firm has taken some competitive hits in the commercial aerospace duopoly, that market is large enough and so difficult to break into that it supports two wide-moat aircraft manufacturers. Airlines have almost no choice but to continue buying their products.

We think Boeing’s defense business is more exposed to operational risk than peers due to its higher exposure to fixed-price contracts, but we think the firm is turning a corner operationally and benefits from intangible assets stemming from the technical complexity of its products as well as switching costs from the time and effort the military faces to switch suppliers as well as a lack of viable alternative suppliers. We think the global services segment possesses intangible assets from proprietary access to aftermarket part designs as the Federal Aviation Administration and other regulators require that spare parts be identical to the original design, as well as benefiting from switching costs stemming from a lack of alternative suppliers for such parts.

In the commercial aircraft manufacturing segment, we believe the technical complexity of aircraft manufacturing and the extensive regulatory barriers to entering the market constitute wide-moat-caliber intangible assets. Boeing and Airbus benefit from these barriers to entry, and this means they operate in a duopoly in the global large-frame jet aircraft market; we expect virtually all global revenue associated with air travel growth will continue to flow through the two incumbent manufacturers’ top lines. What’s more, we estimate demand from airlines for their products will remain high enough for long enough that we expect both firms to generate economic profits for decades.

Read more about Boeing’s economic moat.

Financial Strength

Boeing’s capitalization suffered the brunt of the last three years’ turmoil. To keep the lights on in 2019-20, the company borrowed nearly $50 billion and ceased dividends and share purchases. The company ended 2023 with about $52 billion in debt and $16 billion in cash, $4 billion less net debt than at the end of 2022. But subsequent turmoil in its core businesses left the company with $10.5 billion in cash and $57.5 billion in debt at the end of the third quarter of 2024. Facing a prolonged machinists’ strike and seeking to stave off a debt rating downgrade, the company announced layoffs to cut costs and issued $20 billion of combined equity and convertible preferred stock due in 2027.

Read more about Boeing’s financial strength.

Risk and Uncertainty

We think Boeing’s biggest risks are operational risks, which constrain supply, and macroeconomic risks, which limit demand, both of which the company has suffered over the last several years. We think the firm deserves a High Uncertainty Rating. It is working through much thornier supply chain risks than Airbus as it revives 737 MAX and 787 production and deliveries.

On the demand side, the pandemic dramatically reduced air travel and aircraft deliveries: Trade group IATA reported that passenger demand declined by nearly two-thirds in 2020. While travel has returned to prepandemic levels in most markets, its recovery was patchy and may face renewed disruption at any time, though temporary disruptions of air travel would affect Boeing’s services business much more immediately than its commercial jet business, which has years of orders in backlog.

China is a major aviation market, and notwithstanding the recertification of the 737 MAX in China and resumed deliveries of new planes in due course, we suspect it may be easier (if not simply more expedient) for some local airlines to substitute future marginal orders of 737s for Comac C919s while maintaining or growing their share of orders for Airbus narrow-bodies.

Read more about Boeing’s risk and uncertainty.

BA Bulls Say

• Boeing has a large backlog that covers several years of production for the most popular aircraft, which gives us confidence in aggregate demand for aerospace products.
• Boeing is well-positioned to benefit from emerging-market growth in revenue passenger kilometers and a robust developed-market replacement cycle over the next two decades.
• We expect commercial airframe manufacturing to remain a duopoly for most of the world for the foreseeable future. We think customers will not have any meaningful options other than continuing to rely on incumbent aircraft suppliers.

BA Bears Say

• Boeing’s reputation for engineering prowess may have taken a permanent hit since repeated manufacturing flaws in 737 MAX jets have hampered Boeing’s assembly pace and disrupted airlines’ and passengers’ schedules.
• In the long term, changed consumer behavior, especially among business travelers, could be unfavorable for aviation.
• Aircraft development is notoriously susceptible to development delays, hiccups, and cost overruns.

This article was compiled by Aman Dagra.