A Turnaround Taking Flight on Commercial Recovery and Operational Execution

Drivers of Growth and Valuation

• Commercial Aviation Recovery: Global air travel demand has rebounded to pre-pandemic levels and continues to grow. Airlines are rebuilding and expanding fleets, fueling large aircraft orders. Boeing’s net new orders jumped 70% in 2023, reflecting robust demand for new jets amid the travel rebound. This recovery supports Boeing’s $511 billion backlog, providing a multi-year revenue pipeline as deliveries accelerate. Notably, 737 MAX deliveries have resumed worldwide – including a crucial restart in China, where a delivery freeze since 2019 is thawing. Opening the Chinese market (“a financial win for Boeing” to collect on dozens of parked jets ) and strong domestic/international travel trends position Boeing’s Commercial Airplanes segment for a significant upswing.
• Production Ramp-Up & New Models: Boeing is working through supply chain bottlenecks to boost production rates. It aims to raise 737 MAX output (capped at ~38 per month in 2024) to 42 per month by early 2025, and targets 50+ per month by 2026. Similarly, 787 Dreamliner output is slated to double from ~5/month in 2024 to 10/month by 2026. Success in ramping production will drive revenue growth and improve profit margins via economies of scale. Introduction of delayed models like the 737 MAX 7/10 (expected certification in 2025) and 777X (due ~2025/26) will expand Boeing’s product lineup, unlocking further deliveries starting 2026. Achieving these milestones would convert backlog orders into revenues faster. In short, easing supply constraints and meeting production goals are transformational catalysts for Boeing’s top and bottom line.
• Defense & Space Stability: While commercial aviation is the primary growth engine, Boeing’s Defense, Space & Security division provides a base of revenue with big contracts (e.g. military aircraft, satellites, NASA projects). Upcoming defense programs (such as the T-7 trainer jet and MQ-25 drone) and continued services contracts can add incremental growth. Any major contract wins or government budget boosts would be upside catalysts. Although this segment has faced cost overruns (e.g. tanker and Air Force One) recently, Boeing’s multi-year defense backlog offers a steady revenue floor that can help fund the commercial turnaround.
• New Leadership and Strategic Shift: Boeing appointed a new CEO (Kelly Ortberg as of late 2024) to address execution issues. Management is intensely focused on restoring Boeing’s engineering culture, quality control, and on-time deliveries. Over the next 3 years, improved execution (fewer manufacturing flaws, avoiding labor strikes like the 2024 IAM strike) should bolster profit margins. The company may also resume shareholder-friendly moves (dividends or buybacks) once cash flows normalize, potentially improving investor sentiment and the stock’s P/E multiple. Overall, a cultural and operational “reset” is underway to rebuild Boeing’s reputation and financial performance.

Assumptions (Financial Impact of Catalysts)

• Revenue Growth: Based on robust aerospace demand, analysts expect Boeing’s revenue to rise at a double-digit pace as deliveries ramp. Simply Wall St data shows consensus revenue growth ~13.6% annually over the next few years. I assume Boeing’s sales climb from roughly ~$80 billion in 2024 toward ~$110 billion by 2027 as it works through its order backlog. Key drivers are higher production rates for the 737 MAX and 787, introduction of the 777X, and normalization of deliveries to markets like China. This assumption aligns with industry forecasts of continued traffic growth and record Airbus/Boeing production plans.
• Margin & Earnings Improvement: As output increases, Boeing should see improving operating leverage – fixed costs spread over more units – aiding margins. I assume gradually recovering profit margins, aided by the absence of abnormal charges that plagued recent years (737 MAX grounding costs, one-time write-downs). By 2027, Boeing could approach mid-single-digit net margins (historically, Boeing’s net margin was ~5–10% in healthy years). For example, on ~$100+ billion revenue, a 5% net margin yields ~$5 billion net income. Analysts currently forecast a turnaround to profitability by 2025–2026, with consensus EPS swinging from losses in 2024–25 to positive ~$4.16 by 2026. Simply Wall St similarly projects explosive earnings growth (~78% per year) off today’s depressed base. My thesis assumes Boeing can execute to achieve these improvements – essentially moving from deep losses in 2024 toward solid profits in the next 2–3 years.
• Balance Sheet and Operational Risks: I assume Boeing will gradually repair its financial health as cash flow improves. Debt stood near $58 billion in 2024, and operating cash flow is currently negative, so progress depends on hitting delivery targets. My outlook assumes no major liquidity crisis – i.e. Boeing uses improving cash from deliveries to service debt (possibly reducing debt modestly) and avoids diluting shareholders further. (Notably, Boeing issued equity/debt during the MAX and COVID crises, and Simply Wall St notes “shareholders have been diluted in the past year”.) I also assume the commercial upcycle outweighs any flatness in defense revenues. Essentially, the catalysts listed (demand recovery, production ramp, better execution) are assumed to play out without major setbacks, enabling steadily rising revenue, a return to profitability, and improving cash flow over the 3-year horizon.

Future P/E Valuation

I valued Boeing using a forward-looking P/E multiple on projected earnings 3 years out, then discount back to today:

1. Forecast Earnings (2027): Given the above assumptions, I project Boeing’s net income in 3 years could be in the range of $5–8 billion. This corresponds to earnings per share (EPS) of roughly $8 to $13 (assuming ~620 million shares outstanding ). For a mid-case, assume EPS ≈ $10 by 2027 if Boeing achieves ~6–7% net margin on ~$100B+ revenue.
2. Apply P/E Multiple: Boeing’s historical P/E has ranged ~15×–25× during stable times, though currently earnings are negative. Considering a recovering growth profile but also Boeing’s still-rebuilding status, a reasonable forward P/E around 18× is used (in line with industrial peers and Boeing’s mid-cycle valuation). This multiple reflects optimism for continued growth but also acknowledges execution risks. For perspective, Simply Wall St deems Boeing around fair value today, noting it trades about 9% below their intrinsic value estimate – suggesting the market isn’t pricing in excessive growth beyond consensus.
3. Compute Future Share Price: Using the mid-case EPS ~$10 and P/E ~18×, I get a future stock price around $180 in three years (EPS $10 × 18 = $180). In a bull-case where EPS reaches ~$13 (higher margins) and the market assigns, say, 20× P/E for a truly revived Boeing, the future price could be ~$260. In a bear-case, if EPS is only ~$5 (slower recovery) at 15× P/E, the stock would be ~$75. These scenarios show the range of outcomes tied to execution.
4. Discount to Present Value: I discount the mid-case future price to present using a 10% annual rate (roughly Boeing’s cost of equity). Over 3 years, the discount factor is 0.75. Thus, a future $180 implies a present value around $135 per share. This is below the current market price ($175–$185), indicating limited upside if Boeing only hits the middle-of-the-road targets. The upside case (~$260 future) would discount to ~$195 present, modestly above the current price. In other words, Boeing’s stock already reflects a decent amount of recovery optimism. It will need to deliver earnings at the higher end of expectations to materially outperform.

Verdict: Boeing isn’t a deep value bargain, but if it executes well, its earnings power could justify moderate upside. The Simply Wall St growth forecasts (EPS growing ~77% p.a. ) imply a rapid swing to profitability that, if realized, would support a much higher stock price in a few years. My valuation suggests that under a reasonable growth scenario the stock’s 3-year return potential is positive but not explosive – on the order of high-single-digit annualized gains (commensurate with hitting the catalysts). This hinges on Boeing closing the gap between current hefty revenues and eventual robust profits.

Risk Factors (Downside Scenarios)

Major risks could derail Boeing’s recovery, skewing the outlook bearish:

• Supply Chain & Execution Risks: Boeing is still struggling with manufacturing and supply issues. It has yet to consistently reach its current production targets (e.g. delivering fewer 737s than planned due to parts shortages ). If critical components (engines, fuselages from Spirit Aerosystems, etc.) remain bottlenecked or new production flaws emerge, Boeing might miss delivery goals, hurting revenue and customer confidence. Execution missteps – from quality problems (like prior 787 manufacturing defects) to labor strikes – could delay the recovery and add costs.
• Macroeconomic & Demand Risk: A global recession, credit tightening, or a spike in oil prices (impacting airline finances) could soften aircraft demand. Airlines might defer or cancel orders if travel demand falters. Although current backlogs are strong, cancellations are possible in downturns (aircraft purchase contracts often allow some flexibility). High interest rates are another factor – they raise Boeing’s financing costs and make new aircraft purchases (often debt-financed by airlines or lessors) more expensive, potentially cooling demand. In summary, Boeing is tied to the economic cycle: a downturn in the next 3 years would pose a serious headwind.
• Financial Leverage: Boeing’s balance sheet remains stretched from the twin crises of the 737 MAX and COVID. Debt stands near ~$57–58 billion and operational cash flows are currently negative. This high leverage amplifies risk – Boeing has less flexibility to weather setbacks. Servicing debt could eat into future earnings, and in a downside scenario Boeing might even need to raise equity (diluting shareholders) or more debt if cash flow doesn’t ramp up. Simply Wall St flags that debt is not well covered by cash flow at present. Until Boeing restores positive free cash flow, its financial position is a vulnerability.
• Competitive Pressure: Airbus is capitalizing on Boeing’s troubles – Airbus has led deliveries for five consecutive years and increased its market share (Boeing’s share slipped to ~42% vs 50% pre-MAX crisis). Airbus aims to further boost output (toward 75 A320neo jets/month by 2027 ), potentially outproducing Boeing and capturing more airline fleet renewals. If Boeing cannot execute as quickly, it risks ceding more market to Airbus, which would hurt long-term growth and could compress Boeing’s valuation multiple. Additionally, China’s state-owned COMAC is developing the C919 jet; while not an immediate global threat, over the next decade it could erode Boeing’s sales in China – a strategic market currently hampered by U.S.-China tensions. Heightened competition could pressure Boeing’s pricing and margins.
• Regulatory and Technical Risks: Boeing must successfully certify new aircraft (737 MAX 7/10, 777X) on schedule. Any regulatory hurdles or safety issues could delay entry-into-service, impacting revenues and reputation. After the MAX crisis, regulators are more stringent – a positive for safety but a potential schedule risk. Another extreme but non-zero risk is a safety incident or design flaw in a Boeing aircraft that prompts regulatory action or grounds a fleet. Such an event, while unlikely, would have severe financial and reputational consequences (as seen with the MAX grounding). Finally, environmental regulations are tightening (emissions, noise) – Boeing will need to invest in new technology (possibly a new clean-sheet aircraft later this decade), and falling behind in innovation is a long-term risk.

Conclusion

On balance, a cautiously bullish perspective on Boeing is justified over a 3-year horizon. The tailwinds from commercial aviation recovery and Boeing’s massive backlog suggest revenue and earnings will improve markedly. Analysts predict rapid growth – “earnings are forecast to grow 78% per year” for the next few years – as Boeing digs out of its deep losses. If management executes on production ramp-ups and cost control, Boeing should swing back to profitability and cash generation, supporting a higher stock price. Current valuations (around $180/share) are not cheap relative to near-term earnings, but they do not appear excessive given the earnings potential by 2027. In fact, Simply Wall St estimates the stock is about 9% below its intrinsic value, indicating modest undervaluation.

That said, this bullish thesis is far from risk-free. Boeing’s path is contingent on overcoming significant operational challenges and avoiding macro pitfalls. The downside risks – from supply chain woes to another industry downturn – cannot be ignored, and they cap the enthusiasm. Investors should expect volatility. Yet, considering the strong demand backdrop and Boeing’s resolve to fix its issues, the probability-weighted outcome leans positive. Boeing’s franchise (duopoly position, decades of engineering know-how, and a product line that airlines need) provides resilience. Over three years, the likely scenario is one of gradual but meaningful recovery in Boeing’s financial performance. Thus, while vigilance is warranted, the upside catalysts outweigh the risks on balance – tilting the 3-year outlook toward a bullish stance.

Sources: Boeing Company reports and press releases; Simply Wall St analysis ; Reuters and industry news on aircraft orders, deliveries, and production plans ; Bain & Co. and IATA on air travel recovery ; Boeing backlog and financial data from SEC filings ; Analyst consensus estimates. All data and forecasts as of early 2025.