Why Is Boeing Stock Down 7% In A Day?

Boeing stock (NYSE: BA) stock fell 7% on Tuesday, September 3, faring worse than its peer Airbus which was down 4%. The fall in BA stock can primarily be attributed to the recent downgrade from one of the prominent Wall Street research companies. Boeing has been struggling with delays in ramping up production. The analyst downgrading BA stock cited that the company’s cash flow target of $10 billion may be delayed by two years. Furthermore, the company may have to raise $30 billion in fresh capital for new product development – a tough ask since it already has a huge $45-billion debt on its balance sheet.

Even if we look at a slightly longer term, BA stock has faced a notable decline of 25% from levels of $215 in early January 2021 to around $160 now, vs. an increase of about 50% for the S&P 500 over this period. Returns for the stock were -6% in 2021, -5% in 2022, and 37% in 2023 – underperforming the S&P in 2021. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could BA face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, BA stock looks like it has ample room for growth. We estimate Boeing’s Valuation to be $210 per share, reflecting an upside of more than 30% from its current levels of $160. Our forecast is based on 1.6x revenues for BA, slightly lower than the 2.0x average valuation multiple over the last five years. A slight decline in the valuation multiple from its historical average for Boeing seems justified, given the current curbs by the FAA and its impact on near-term profitability.

Boeing’s revenue rose at an average annual rate of 10.3% from $58.2 billion in 2020 to $77.8 billion in 2023. There is a massive demand for new aircraft with a rise in global travel, and this trend is not going to change anytime soon. However, the aircraft manufacturers record most of the revenue at the time of delivery and amid the ongoing issues with Boeing, its sales have taken a beating. For perspective, the company reported sales of $33.4 billion in the first half of this year, reflecting an 11% y-o-y decline. Furthermore, the company’s operating margin deteriorated by 310 bps to -5.3%. Lower revenues and margin erosion resulted in its loss ballooning to $4.04 per share, versus $2.08 in the first half of 2023. We expect 2024 sales to be around $76 billion for the company and an adjusted loss of $3.55 per share, compared to $78 billion in sales and $5.81 loss per share in 2023.

Although Boeing’s stock looks attractive from a valuation perspective, it will take a while for the company to return to a strong growth phase. The company made 25 airplanes in July and plans to ramp up to 38 jets by the end of 2024. However, it may be well into 2025 when the company achieves this target. The longer the delay, the more it will weigh on the company’s profitability. Overall, Boeing is going through a tough phase, but much of this is already priced in, with its stock down 40% so far this year.

While BA stock may see higher levels, it is helpful to see how Boeing’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.