In 2019 when Boeing was still flying high, we wrote about why to invest in Boeing. We noted that Airbus and Boeing controlled 80% of the commercial aviation market and Boeing was a major defense contractor. Then the crashes of two 737 MAX jets due to a faulty autopilot happened and Boeing stock fell. At the end of 2019 we were asking how bad will it get for Boeing? The stock had fallen by a fourth. Then things went from bad to worse when the Covid-19 pandemic hit and Boeing stock fell by another 69%. Its post-pandemic recovery was mostly wiped out when the Fed raised interest rates to fight inflation. Now Boeing stock has nearly doubled in value since September 2022 and the likes of Seeking Alpha are writing about Boeing’s remarkable comeback story. So, should you invest in Boeing again or are there more downs as well as ups ahead of the company?
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Intrinsic Value of Boeing Stock
Successful long term investors commonly assess the intrinsic value of a stock before buying it for the long term. Intrinsic value is determined by looking at the prospects of forward-looking profits. Will Boeing’s four divisions, commercial airplanes, defense, space and security, and global services provide the sort of consistent and increasing profits required to keep driving the stock price up? The company’s gross profit was $4.91 billion for the fiscal year ending in June 2023. That was a 190.08% increase over the previous fiscal year. It certainly helps explain the rise in stock price since the fall of 2022. It does not tell us how well Boeing will continue to do going forward.
War Is Good for Defense Stocks
Russia’s invasion of Ukraine and the continuing conflict has stimulated defense spending by all NATO nations as well as allies like Australia, South Korea, and Japan. Germany is forking over $8 billion to replace their fleet of attack helicopters. And other nations are making similar purchases. At this point the Ukraine war looks a smaller version of World War I with soldiers in trenches and gains measured in yards instead of miles. So long as the conflict continues arms purchases will remain strong and Boeing will prosper.
Peace and Prosperity Are Good for Commercial Aviation
The fact that the Fed may be achieving a soft landing with their attempts to curb inflation is good news for the economy and for Boeing’s commercial aviation division which is typically responsible for half of their profits. Their 737 MAX is fixed and flying again without crashes and the company is steadily booking orders. Going into 2023, Boeing had more than 4,500 orders for commercial jets on the books. Because it takes about two years from start of production to delivery, Boeing will not have all of its profits for planes until they are delivered. Payment is made by a schedule as production proceeds.
Is There a Reliable Price Target for Boeing?
Current price targets for Boeing are not much higher than its current stock price of $238. The stock traded in the $390 range in 2019 before the 737 MAX disaster, Covid-19, and then the Fed took it down. It took a reviving economy and the first land war in Europe since World War II to bring it back up. It is useful to note that in 2016 before the entire market rallied that Boeing was trading in the $130 range. That makes its current stock price a premium. The point is that the Boeing recovery has already happened and it is not likely to double in price again in the coming years unless it does something amazing like replicating the SpaceX technology for being able to launch and land the first stages of rockets. However, as the company regains stability they will probably start paying a dividend again.
Should You Invest in Boeing Again? – SlideShare Version