Despite all the issues over the past few years, there is still a strong case for purchasing. boeing (NYSE:BA) stock. After all, the company remains one of the two true global players in the commercial aircraft market and continues to win orders while sitting on a $529 billion backlog (Q1 net orders for 125 aircraft). Enough to justify buying the stock? Here's an overview:
Boeing's goal is $10 billion
Investors listen when management sets medium-term goals. As soon as they do so, investors begin to set their valuation assumptions. Everyone knows this, so managers tend to set achievable goals, and investors closely monitor progress toward those goals.
So when Boeing's management set a goal of $10 billion in free cash flow (FCF) by 2025-2026, it's safe to say that everyone expected Boeing to meet that goal. The debate revolved around timing. Early 2025 or late 2026?
Boeing will not meet its goals
The consensus among Wall Street analysts (by no means the most critical audience) is that Boeing will miss this goal and will instead reach $9.3 billion in FCF in 2026. Analyst consensus reflects that Boeing is behind schedule for 2023, having delivered only 396 Boeing 737s. Aircraft, compared to target 400-450.
becomes terrible.Quality control issues and high-profile incidents alaska airlines Boeing's 737 Max 9 aircraft was grounded following a flight in January, and only 67 737s were delivered in the first quarter. For reference, the $10 billion goal assumes Boeing will deliver 50 737s per month in 2025/2026.
Despite this, Boeing's management still believes it will reach its $10 billion goal, with CFO Brian West recently stating: Production deliveries of 737s and 787s will increase to 50 and 10 aircraft per month, respectively,” it said in the financial statement.
5 reasons why it's hard to achieve your goals
Unfortunately, there are many headwinds that Boeing must overcome before reaching its goals.
First, airplane ramps are tricky at the best of times. The slowdown in deliveries will help Boeing overcome supply chain issues plaguing the industry, but suppliers will also need to aggressively ramp up production.
Second, the possibility of acquisition by Boeing Spirit Aero Systems It may reassure investors that one of its key suppliers (737 airframes) is safe. Still, Spirit needs investment and has been bleeding money in recent years. That won't help Boeing's FCF goals.
Third, delivery delays may cause the airline to order from the next airline. airbus or Embraer (downsizing the plane), or insisting on deep discounts from Boeing to reflect the impact on cash flow of delays. Additionally, delivery delays often require compensation payments to airlines.
Fourth, Boeing is moving into summer negotiations with the International Association of Machinists and Aerospace Workers (IAM) over the renewal of its contract, which expires in mid-September. Boeing could have a tough time negotiating as skilled workers are in high demand due to past layoffs, especially during lockdowns when there were a number of layoffs that led to employees changing industries.
Fifth, and perhaps most important, maintaining production quality requires significant investment. Boeing cannot survive without guaranteeing production quality, and the company's management recognizes that ensuring manufacturing quality is a top priority. While the $10 billion budget goal may be negotiable, ensuring manufacturing quality control is non-negotiable.
Is Boeing stock a buy?
The stock has a point, but it's not a strong stock for investors who are dependent on Boeing hitting its $10 billion FCF target in 2026. As such, most investors should avoid this stock until the above issues are clarified or management recalibrates investment levels. period goals.
Should you invest $1,000 in Boeing right now?
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Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends Alaska Airlines Group. The Motley Fool has a disclosure policy.
Is Boeing stock a buy?Originally published by The Motley Fool
