Boeing Earnings: Disappointing Quarter Shows Recovering From Existential Crisis Takes Time

Key Morningstar Metrics for Boeing

• Fair Value Estimate: $223.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Boeing’s Earnings

Boeing’s BA disappointing third quarter included a litany of cost overruns and more production delays, resulting in revenue declining 8% since the second quarter and an $808 million operating loss.

Addressing yet another manufacturing mistake by Spirit AeroSystems, which supplies the bulk of 737 fuselages, will delay Boeing’s delivery of the 250 737 MAXs it has been reworking for the past few years and will hamper its ability to boost the production volume of its bestselling product. We pushed out our delivery and production forecast again, lowering near-term commercial aviation revenue and profit and driving our fair value estimate down to $223 from $230.

Cost overruns again erased profitability in a number of fixed-price programs in the defense and space division, and we lowered our forecast operating profit for the unit. Boeing’s global services unit, representing about one fourth of the company’s revenue, looks likely to continue performing with midteens operating margins along with continued demand for air travel and aircraft maintenance.

We also saw upticks in Boeing’s research and development expenses. We believe Boeing faces tough trade-offs in deploying its available capital, perhaps most starkly between paying down debt and inventing future products. Given Boeing’s leverage, it has favored debt payments of late, including $5 billion in the third quarter. Although increases in R&D spending also marred profits in the latest quarter, we think reinvesting in future capabilities is necessary to preserve Boeing’s economic moat.

Boeing’s management described 2025-26 as when it thinks the company may reach “stability.” We have forecast 2024 as another transition year, with improving results, though no operating profit from its commercial aviation or defense units. We can’t rule out more cost overruns or production gremlins, but Boeing has compelling demand for its workhorse jets, which should eventually pay off for the company and its investors.