Boeing (BA) stock may have hit a low point, but I still have concerns about the company’s direction after a less-than-impressive Farnborough International Airshow performance and disappointing Q2 results. The aircraft manufacturer and defense giant has seen its reputation for quality brought into question in recent years, and this may continue to impact orders throughout the medium term. This is why I’m neutral on Boeing stock. I believe it’s too expensive after its poor performance recently.
Boeing Losses at Farnborough
The Farnborough International Airshow is an important date in the calendar for aircraft OEMs, such as Boeing and Airbus (EADSF). However, Airbus emerged as the clear winner at the 2024 Farnborough Airshow, which took place July 20-24.
At the end of the event, Boeing announced 118 orders and commitments valued at $17.1 billion, and Airbus secured 234 airplane deals worth $18.8 billion. While this sounds fairly close, Airbus’s success included 164 firm and tentative deals, compared to Boeing’s 76 orders.
Airbus was able to secure a last-minute deal with Saudi Arabian carrier Flynas, which boosted total numbers. At the same time, Boeing’s performance reportedly suffered due to ongoing challenges, including safety and production issues, which have been a lingering concern since the 737 Max incidents. Interestingly, Boeing offered no commercial demonstrations at the event.
However, it’s also worth noting that Boeing’s numbers had a bit of window dressing. First, the company revealed that Qatar Airways had ordered 20 aircraft earlier in the year, and this was included in the Farnborough numbers.
Next, 22 tentative or firm deals were “under option,” and these were included in the Farnborough numbers, including two from Luxair, 10 from Korean Air, and 10 from Japanese Airways. Then there are the 54 orders under a tentative agreement valued at $9 billion.
With these subtractions, that leaves Boeing with just 22 orders under firm contract. The total value of these Farnborough contracts is just $1.2 billion.
Boeing Misses Expectations
Boeing’s second-quarter earnings fell short of expectations, with the company registering a 15% decline in revenues to $16.87 billion, driven primarily by lower commercial airplane deliveries. The market had bet on revenues of $17.35 billion, resulting in a $480.3 million shortfall.
Further, the company’s core earnings per share showed a loss of $2.90, worse than the $2.01 loss per share expected by analysts. This was exacerbated by continued cost growth in Boeing’s Defense segment, where Boeing has absorbed inflation on fixed-price contracts such as the VC-25B Presidential Aircraft program (costs on this program have increased by $250 million due to engineering challenges). Core operating margins also deteriorated, dropping from -2% to -8.3% year-over-year.
Boeing’s commercial airplane deliveries were an expected pain point. With ongoing safety and production issues, the number of airplanes delivered decreased from 136 in Q2 of 2023 to just 92 units in the last quarter, representing a 32% decline. This directly impacted revenue, with production rates for the Boeing 737 Max being one of the biggest issues.
However, there were some positives, and this is probably why the share price pushed upwards. The company appears to have made decent progress on improving production quality and is ready to increase the rate of Boeing 737 MAX production. Boeing now expects to produce 38 airplanes per month by the year’s end.
Boeing’s efforts have focused on minimizing the need for fixes and implementing a comprehensive safety and quality plan submitted to the Federal Aviation Administration. Analysts are now also pointing towards a net reduction in Boeing 737 Max inventory.
Is Boeing a Value Play?
There are certainly signs that things could pick up at Boeing, but the business is struggling now. It has been loss-making for years and now trades at around 9x the earnings it achieved in 2018. It’s a company in reverse.
Nonetheless, the majority of analysts see earnings per share improving significantly in the coming years, moving from $4.11 per share in 2025 to $11.75 in 2027. In turn, this sees the price-to-earnings (P/E) improve from current incalculable territory to 14x for 2027.
Personally, though, I’m not convinced. I’m comfortable investing for future cash flows, but this company has a lot of problems to work through, and I’m not convinced it will shake off its reputational damage as quickly as the forecasts suggest.
Is Boeing Stock a Buy, According to Analysts?
On TipRanks, BA stock comes in as a Moderate Buy based on 15 Buys, four Holds, and one Sell rating assigned by analysts in the past three months. The average Boeing stock price target is $218.00, implying 33.15% upside potential.
The Bottom Line on Boeing Stock
Boeing is sending mixed messages. The company underperformed at Farnborough and missed estimates in Q2. However, production numbers are likely to pick up from here in the hammered civil aviation department, and analysts still point towards a fairly rosy future for the company.
Personally, I remain concerned about the reputational damage the company has endured and ongoing cost inflation, especially on fixed-price programs. Collectively, this makes me doubt the very positive earnings forecasts.
