Boeing (BA) has been among the worst-performing stocks in the aerospace and defense sector in 2024, with a year-to-date decline of 36%. The company’s reputation has suffered due to a continuous stream of bad news, suggesting that further challenges may lie ahead. On the bright side, many analysts predict a return to profitability for the company in 2025. Having said that, I am maintaining a neutral stance on this aviation and defense player because of ongoing reputation issues, safety concerns, and valuation problems.
Let’s take a look at the details.
Boeing Hits the News Cycle Again
One of the main reasons I’m staying on the sidelines with BA stock is the damage to its reputation.
Boeing has experienced a turbulent period in recent years, marked by a series of persistent negative news. Most recently, the company was in the news for its Starliner spacecraft, which is part of NASA’s Commercial Crew Program. The spacecraft was designed to transport astronauts to and from the International Space Station (ISS). This was seen as a breakthrough moment for Starliner, especially after the program had encountered multiple delays and technical issues.
The spacecraft was finally launched on June 5 in its first crewed mission, but it hasn’t been successful. Starliner’s propulsion system failed, and NASA contended it was unsafe to bring the astronauts back to Earth. Due to issues such as helium leaks and thruster malfunctions, the two astronauts will now be stranded on the ISS for eight months, instead of the originally planned eight-day trip.
The unfortunate event has raised concerns about the viability of Boeing’s Starliner spacecraft. According to estimates from Reuters, Starliner has resulted in $1.6 billion in cost overruns for Boeing since 2016. Meanwhile, Boeing has spent over half of its $4.5 billion NASA contract, awarded in 2014. Nonetheless, Starliner has yet to receive certification or final approval for regular use. The contract covers six Starliner missions following the capsule’s certification.
Boeing Faces Additional Challenges in Space Division
Additionally, the Space Launch System (SLS) presents another challenge for Boeing’s space division. Designed to be the launch vehicle for America’s lunar return program, the SLS has encountered years of delays and has significantly exceeded its budget by billions of dollars.
Boeing’s space business, part of its Defense, Space & Security (BDS) segment, was expected to be a major growth area. Nevertheless, experts believe that there are some serious quality control issues within this segment. In 2023, the BDS segment generated about $25 billion in revenue, representing approximately 32% of Boeing’s total annual revenue of $77.8 billion.
Boeing’s Commercial Segment Under Scrutiny
While the space sector is a significant part of Boeing’s business, the company also relies heavily on its Commercial Airplanes and Global Services segments. Adding salt to injury, Boeing’s Commercial Airplane segment is also currently struggling due to a series of high-profile safety incidents.
Speaking of problems in Boeing’s Commercial segment, the two fatal 737 Max crashes in 2018 and 2019, exposed critical flaws in its flight control software. These accidents resulted in 346 deaths. Later in 2021, Boeing settled for $2.5 billion to evade criminal charges and acknowledged misleading investigators regarding the safety of its aircraft. Additionally, the company’s image has been further tarnished by recent incidents, such as a mid-air panel blowout on a 737 Max.
Boeing Shifts Focus to Safety and Quality
At the 2024 Farnborough International Airshow, Boeing announced 118 orders and commitments valued at $17.1 billion, which paled in comparison to Airbus’s (EADSF) 234 airplane deals worth $18.8 billion. This performance underscores that the issues at the company are long-running and nuanced. Moreover, on closer inspection, Boeing’s figures included previously secured orders and tentative deals, resulting in only 22 firm contracts valued at $1.2 billion.
This lackluster commercial performance likely reflects ongoing safety and production issues, further exacerbated by the decision to skip commercial demonstrations at the event.
Contrary to this, Boeing highlighted that it is now focused on safety and quality. As a result, it has scaled back its commercial airplane displays and flight demonstrations at the show. The Farnborough Airshow is typically a place where OEMs (original equipment manufacturers) announce big new orders every year.
Is Boeing’s Valuation Problematic?
All of the above challenges would be palatable if the stock was cheap. However, that’s very much up for debate, and I’m personally not convinced.
That’s because Boeing isn’t forecasted to return to profitability until 2025, and despite the share price pulling back, it’s trading at 40.57x forward earnings for next year. This price-to-earnings (P/E) ratio then falls to 20.04x in 2026 and 12.82x in 2027.
Of course, 12.82x forward earnings for 2027 may look cheap to some investors. But, I’m concerned that the forecasts are a little optimistic. There are currently only six analysts providing earnings estimates for 2027, and I’m not convinced that the company’s current trajectory will allow for such an impressive expansion of earnings from the current loss-making position.
That being said, there’s a caveat to my argument. Airbus forecasts from 2021 suggested that the passenger and freight sector would require 39,000 new aircraft by 2040. After decades of consolidation within the sector, there are two major players in this sector — Airbus and Boeing. Despite Boeing’s reputation damage, it may have a captive market.
Is Boeing Stock a Buy, According to Analysts?
Despite mounting troubles, analysts remain moderately optimistic about Boeing stock. On TipRanks, BA stock has received a Moderate Buy rating based on 13 Buys, four Holds, and two Sell recommendations from analysts. The average Boeing stock price target is $212.71, implying a 33.1% upside potential.
The Bottom Line on Boeing Stock
Personally, I struggle to back a stock facing so many negative catalysts right now. While analysts generally believe Boeing will recover from its reputational and financial nadir, I remain skeptical. The damage to its reputation is a major concern for me, even with strong long-term demand for aerospace and defense products and services.
