787 Production Will Stabilize And Contract Wins Will Support Progress

Key Takeaways

• Stabilizing production and increasing 737 and 787 rates build a strong foundation for future revenue, supported by a significant backlog.
  
• Divestiture of Digital Aviation Solutions business boosts cash flow, strengthening balance sheet and supporting core operations.
  
• Boeing faces revenue and margin pressures from tariffs, supply chain vulnerabilities, certification delays, and execution risks in defense programs.

Catalysts

Designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide.

• Boeing's focus on stabilizing their production with improved KPIs for 737 and 787 programs indicates a clear path to increasing production rates, potentially enhancing revenue and cash flow as more planes are delivered.
  
• The planned increase in production rates for the 737 and 787, along with achieving a stable production system, sets a strong foundation for future revenue growth, especially as a significant backlog supports sustained production levels.
  
• The divestiture of portions of Boeing's Digital Aviation Solutions business is expected to provide a substantial cash infusion of approximately $10 billion, which will strengthen the balance sheet and support investment in core operations, potentially improving net margins.
  
• Winning the contract for the F-47 fighter jet positions Boeing for long-term stable revenue in the defense sector, leveraging high-margin defense contracts and contributing positively to earnings.
  
• Boeing's proactive measures to tackle supply chain challenges and input tariffs, while managing order fulfillment amid the China delivery challenges, demonstrate a strategic approach to maintaining operational efficiency and protecting net margins in an uncertain global trade environment.

Boeing Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boeing's revenue will grow by 17.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -16.8% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $6.6 billion (and earnings per share of $8.48) by about May 2028, up from $-11.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $8.3 billion in earnings, and the most bearish expecting $2.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.7x on those 2028 earnings, up from -12.0x today. This future PE is greater than the current PE for the GB Aerospace & Defense industry at 32.1x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.86%, as per the Simply Wall St company report.

Boeing Future Earnings Per Share Growth

Risks

• Boeing is facing potential revenue impacts due to retaliatory tariffs, particularly from China, which have led some Chinese customers to halt aircraft deliveries, raising concerns about market access and financial stability.
  
• Input tariffs on components from countries like Japan and Italy are increasing manufacturing costs, which could squeeze margins if Boeing is unable to recover these costs consistently.
  
• Continued issues with seat certification on the 787 and potential delays in delivering in-demand aircraft could affect Boeing's delivery schedules and revenue forecasts.
  
• Execution risks related to fixed price development programs in Boeing’s defense segment might jeopardize financial performance if these programs face cost overruns or schedule delays, impacting net earnings.
  
• Supply chain vulnerabilities, highlighted by the impacts of a fastener supplier's fire, could disrupt production schedules and necessitate costly inventory corrections, affecting cash flow and operational margins.

Valuation

• The analysts have a consensus price target of $196.045 for Boeing based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $230.0, and the most bearish reporting a price target of just $140.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $112.4 billion, earnings will come to $6.6 billion, and it would be trading on a PE ratio of 33.7x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $185.46, the analyst price target of $196.05 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.