Boeing Earnings: Runway Seems To Be Clearing, Space and Defense Aside

Boeing Stock at a Glance

• Fair Value Estimate: $230
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide

Boeing Earnings Update

Boeing’s BA second-quarter results saw revenue continue to grow in commercial jets—up 41% since the June quarter of 2022—though defense and space came in flat and neither of these businesses turned a profit in the quarter.

Nevertheless, with a few offsetting adjustments to our near-term forecasts, and mostly because Boeing’s future cash flows are less discounted as they grow nearer in time, we have raised our fair value estimate to $230 per share from $225.

We reined in our near- and medium-term forecasts for profitability at the defense and space unit, simply because we think the company has more work to do as it completes or reprices some of its contracts, in which the company bears the brunt of cost overruns.

We tweaked our estimate of aircraft pricing slightly higher over the next two years, on reports that airlines are prioritizing timing and access to the production schedule over negotiating hard on pricing. Boeing’s workhorse 737 and 787 models are still mired in production backlogs and the company is booking extraordinary costs against these because their production volumes are below desirable levels. Our forecast still assumes these conditions will alleviate by early 2025.

We welcome the confirmation that Boeing has increased its production rate for 737s to 38 planes per month and to four for the 787, anticipating five per month at the end of this year. Boeing can solve its problem by delivering more planes than they build for a few more years, as they have done in nine of the 10 quarters since they recommenced production at the end of 2020. Thus, pulling from the backlog of planes that needed rework and inspection after the series of manufacturing and production gaffes the company experienced over the last several years will free up valuable people to make new planes at higher rates and meet the voracious demand that the airline industry has accumulated, with favorable effects on Boeing’s revenue and profitability in its core business.