Boeing Should Soar Again: Here’s My Buy Strategy And Price Target

Summary:

• Boeing is a potential turnaround stock and contrarian buying opportunity.
• Recent safety issues and negative headlines have caused the stock to plunge, creating a potential buying opportunity.
• Boeing has a massive order backlog, strong earnings potential, and the possibility of reinstating a dividend.

I like looking for turnaround and contrarian investment opportunities. These types of opportunities have often yielded strong results for me in the past. This keeps me motivated to find situations where investors are probably being overly negative and selling their shares for less than what they are worth longer term. I think Boeing (NYSE:BA) is close to being a turnaround stock and a contrarian buying opportunity. I recently wrote about RE/MAX (RMAX) as being my top turnaround stock pick for 2024. I had thought about making Boeing my top turnaround pick for this year, but I think it is too early for that. However, I think it makes sense for me to start buying in small amounts; here’s why:

Boeing has had a very rough few weeks in the headlines lately. It seems like every other day or so we hear about some type of mishap like a wheel falling off a Boeing aircraft or something else that makes flying seem a bit less safe. These issues are extremely unfortunate, and it is very bad timing-wise for Boeing because this company was plagued with safety issues that started a few years ago. By now, one would have hoped that any major safety issues were done and over with, but clearly that is not the case.

Unfortunately for Boeing, it seems like just about every issue makes huge headlines, even ones where there would appear to be no fault on Boeing’s part. However, Boeing has been, and remains under a microscope and it’s an easy scapegoat. The stock has plunged under the weight of all the negative news, and it made me wonder where the bottom is, and whether or not this is a buying opportunity. I wrote a bullish article on Boeing in October 2022, and this was when the stock was trading near what were 52-week lows at the time, which was just around $120 per share. A few months after I wrote that article, Boeing shares had nearly doubled in value. I sold my Boeing shares after seeing the stock rise and I am now looking at another potential bottom-fishing opportunity with this stock.

Boeing Has Issues, But Can’t Be Blamed For Everything Under The Sun

It seems clear that a number of safety mishaps in recent years have been issues that Boeing is at least partially, if not totally responsible for, however the level of blame recently might be going too far. In recent days a tire fell off a Boeing 777 and it had to make an emergency landing in Los Angeles. Another Boeing plane recently had to do an emergency landing due to a hydraulic system issue. Some of these issues sound like they could occur if the planes are not being properly inspected or maintained.

In another incident, around 50 passengers were recently injured when a LATAM Airlines flight took a sudden nosedive. This was on a Boeing 787, so it seems like a lot of people were quick to suspect some kind of issue related to the design or manufacturing, but there are now reports that this may have been caused unintentionally by human error, which could mean the airline staff was responsible.

A CNBC article that was published on March 18, 2024, points out that a number of these recent safety incidents involved United Airlines (UAL) and the CEO of that company is now trying to reassure passengers that they are safe. The article also points out that most of these flights originated or ended in San Francisco, which could point towards maintenance issues with United Airlines, the article states:

“All of the incidents are now under investigation, and it has some aviation experts questioning their connection to the San Francisco airport.”

According to Airfleets.net, the average age of a Boeing Jet in United Airlines fleet is over 16 years old, and many are more than 20 years old.

Boeing Needs To Clean House And Make Big Changes

Even though some of the recent safety mishaps may not all be Boeing’s fault, I think it is time to clean house in order to show that safety is taken seriously and to restore confidence. With another recent round of safety concerns, which have triggered new investigations for Boeing, they truly need to show accountability and have a renewed corporate culture for safety. I believe some firings are in order and that this will happen. Announcements about new upper management would probably bring a relief rally to this stock. Dave Calhoun has been CEO since 2020, and he was seen by many as someone who was supposed to “fix” Boeing. I would not be surprised to see a new CEO named in the near future.

Boeing is reportedly looking at buying Spirit AeroSystems (SPR) and this could help improve oversight on quality control and safety. This would be a big change since Spirit AeroSystems makes the fuselages for Boeing and it was owned by Boeing back in 2005.

Massive Backlog And Duopoly Make This A Big Investment Opportunity

While it seems like every incident is now making top news headlines, it is easy to be distracted from the elephant in the room which is the fact that Boeing has recently been reporting record levels of orders and the best deliveries in 5 years. What’s even more incredible is Boeing’s massive order backlog which stands at $520 billion. That’s right, over half a trillion dollars in their backlog. Boeing is expected to generate about $89 billion in revenues for 2024, so this backlog represents many years’ worth of business for the company. In addition to the massive backlog, Boeing is part of a duopoly and in spite of China trying to enter this industry, the duopoly status is not likely to change any time soon.

Earnings Estimates And The Balance Sheet

Analysts expect Boeing to earn $3.36 per share on revenues of about $89.44 billion. However, earnings are expected to jump in the coming years with estimates of $7.96 per share for 2025, and $11 per share for 2026. But these numbers appear to be just a fraction of Boeing’s normalized or peak earnings power.

In 2018, Boeing posted earnings of just over $16 per share and the stock peaked at around $450 per share in early 2019. I think Boeing can and will get back to earnings of about $16 per share; in fact, I believe it could earn around $20 per share due to price increases in coming years and that could put the stock back to a range of $400 to $450 per share. However, a lot would have to go right for that to happen (or at least not so many things can keep going wrong), and this will probably take time.

In terms of the balance sheet, Boeing currently has about $54 billion in debt and nearly $16 billion in cash. With revenues and profits expected to significantly increase in the coming years, Boeing should be able to pay down debt. With a stronger balance sheet, Boeing might be able to resume paying a dividend, which it suspended in 2020. Prior to suspending the payout, Boeing’s quarterly dividend was just over $2 per share. Bringing back a dividend could be a strong upside catalyst for the stock since it could allow dividend-focused ETF’s and mutual funds to buy the stock.

The Chart

As the chart below shows, Boeing shares saw a significant decline in November, plunging to the $170 level, but then surged and were trading for nearly $270 just a few months ago. More recently the stock has plunged again to around $180. This is not far from the $170 per share level in November 2023, which is where it bottomed-out. With this chart pattern in mind, it seems likely that Boeing shares could be at or near a bottom now. I would not be surprised if this stock bottomed out in the $170 level again, (as it did in November) and if so, this could create a very bullish double bottom on the chart.

What I Like About Boeing

In spite of some unfortunate issues in the past few years, Boeing has had a stellar reputation in many ways, such as whether it was aircraft that saved the day in past wars, and with storied aircraft like the 747, which is still the plane of choice for the President. The company has made progress in resolving some safety concerns over the past couple of years and the current problems are fixable. It has a massive backlog of orders. There has been a lot of bad news lately, but perhaps not all of it should be attributed to Boeing it seems. There is plenty of good news that could be on the horizon, including new management, strong demand continuing, resolution of safety issues, and potentially learning that Boeing is not to blame for all incidents. Further out on the horizon, Boeing could reinstate a dividend and deliver record earnings.

What I Don’t Like About Boeing (Potential Downside Risks)

There is probably more bad news coming, and that means headline risks remain large. However, at some point the bad news is priced-in and maybe even more than priced-in which means the stock might stop going down on negative headlines. With some renewed safety concerns, there is going to be a microscope on this company and that might be a good thing, but it also could mean delays in terms of financial performance. However, the share price is much lower now, which gives investors a bigger margin of safety. I don’t like that there doesn’t seem to be any accountability in the sense that everyone still appears to have a job at this company, and maybe shouldn’t. If there is a new catastrophic incident or a major recession, this stock could retest the lows it was trading at when I last wrote about it, which is around $120.

My Investment Strategy

I am not an eager buyer of this stock right now, but I am watching it every day and I am a willing buyer in very small amounts at current levels and on further weakness. However, I would like the stock to test the 52-week lows of roughly $176 per share before increasing my buys. I expect more bad news will be making the headlines for Boeing in terms of regulatory and legal issues so this could provide a better buying opportunity. A year from now, things could be clearing up for Boeing and investors could start looking forward to better days. I believe Boeing shares can hit my 12-month price target of $250, and longer term I think this stock can trade once again at about $400 per share if it gets back to earning close to $20 per share. However, this might take a few years.

In Summary

Boeing has fixable problems and I believe it will eventually fix them. I think you have to look past some of the hysteria that seems to exist with Boeing getting potentially blamed for everything. In spite of the recent headlines, Boeing has made progress and if you look out over the next few years, it should continue to enjoy its duopoly status and continue to add to its massive backlog. I see the potential for a dividend being reinstated and for earnings of roughly $20 per share in the future. Right now, this is like taking a turbulent flight, and it might not feel comfortable taking the flight or buying the stock, but as in most cases, you are likely to reach your destination and be happy you took the risk.

No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of BA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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