Boeing released its second-quarter earnings report on July 29. Here’s Morningstar’s take on Boeing’s earnings and stock.
Key Morningstar Metrics for Boeing
- Fair Value Estimate: $249.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
What We Thought of Boeing’s Q2 Earnings
Boeing delivered 104 737 MAX and 24 787 jets in the second quarter, progressing toward its respective goals of around 400 and 80 of its most popular aircraft in 2025. Defense recorded a small operating profit and no charges, while services contributed nearly $1 billion in operating profit.
Why it matters: The most important metric we are monitoring on Boeing’s path to recovery is simply the rate at which it is building and delivering 737 and 787 jets. Secondly, we hope to see no further charges in the defense business, and we expect the services business to maintain its solid contribution to profit and cash flow.
- CEO Kelly Ortberg indicated that all but one of the key performance indicators the company and the Federal Aviation Administration are monitoring on the 737 assembly line to ascertain when production rates will be deemed stable and repeatable enough to begin increasing output are in the green.
- The remaining indicator relates to the number of hours spent working on manufacturing steps out of the normal sequence. We are cautiously optimistic the company will tackle this metric within the year and begin upping 737 production by 2026.
The bottom line: We have trued up our 2025 forecasts to recent progress and revised our fair value estimate from $242 to $249 per share for wide-moat Boeing. The shares have regained some ground lately and trade about 8% below our updated fair value estimate.
- Our forecast for 2025 deliveries of 737s is 34 more planes than the company’s stated guidance of 400, and we estimate the company may deliver 11 more 787s than its goal of 80. If the result lies somewhere in between, it will still be a positive development on the company’s turnaround trajectory.
Fair Value Estimate for Boeing
With its 3-star rating, we believe Boeing’s stock is fairly valued compared with our long-term fair value estimate of $249 per share, which represents an enterprise value of 28 times our 2026 EBITDA estimate. We think enormous special charges and fleet groundings are mostly behind Boeing, and we forecast one more year of really hard slogging as the company clears up labor, manufacturing, and supply chain issues that hamper its production pacing. Our valuation reflects healthy long-term global demand for Boeing’s products and successful scaling up of deliveries and eventually margins on its bread-and-butter 737 and 787 models in 2026-27.
Read more about Boeing’s fair value estimate.
Economic Moat Rating
We think Boeing merits a wide moat rating because it benefits from durable intangible assets and switching costs. Although Boeing has taken competitive hits from Airbus in the commercial aerospace duopoly, the commercial airplane market is large enough and so difficult to break into that it supports two wide-moat aircraft manufacturers. Airlines have almost no choice but to continue buying their products.
We see the global services segment as possessing intangible assets from proprietary access to aftermarket part designs, as the FAA and other regulators require that spare parts be identical to the original design. We think it also benefits from switching costs, stemming from a lack of alternative suppliers for such parts.
Read more about Boeing’s economic moat.
Financial Strength
Boeing’s capitalization suffered the brunt of the last three years’ turmoil. To keep the lights on in 2019-20, the company borrowed nearly $50 billion and ceased dividends and share purchases.
The company ended 2023 with about $52 billion in debt and $16 billion in cash, $4 billion less net debt than at the end of 2022. But subsequent turmoil in its core businesses left the company with $10.5 billion in cash and $57.5 billion in debt at the end of the third quarter of 2024. Facing a prolonged machinists’ strike and to stave off a debt ratings downgrade, the company announced layoffs to cut costs and issued $23 billion of combined equity and convertible preferred stock due 2027, leaving it with $7 billion in cash and $53 billion of debt by mid-2025.
Read more about Boeing’s financial strength.
Risk and Uncertainty
We think Boeing’s biggest risks are operational risks, which constrain supply, and macroeconomic risks, which limit demand. The company has seen issues in both areas over the last several years. We think Boeing deserves a High Uncertainty Rating. The firm is working through much thornier supply chain risks than Airbus as it revives 737 MAX and 787 production and deliveries.
On the demand side, the pandemic dramatically reduced air travel and aircraft deliveries. While travel has returned to pre-pandemic levels in most markets, its recovery was patchy and may face renewed disruption at any time. Temporary disruptions of air travel would affect Boeing’s services business much more immediately than its commercial jet business, which has years of orders in backlog.
China is a major aviation market, and notwithstanding recertification of the 737 MAX in China and resumed deliveries of new planes in due course, we suspect it may be easier (if not simply more expedient) for some local airlines to substitute future marginal orders of 737s for Comac C919s while maintaining or growing their share of orders for Airbus narrow-bodies.
Read more about Boeing’s risk and uncertainty.
BA Bulls Say
- Boeing has a large backlog that covers several years of production for its most popular aircraft, which gives us confidence in the aggregate demand for aerospace products
- Boeing is positioned to benefit from emerging-market growth in revenue passenger kilometers and a robust replacement cycle in developed markets over the next two decades.
- We expect commercial airframe manufacturing to remain a duopoly for most of the world for the foreseeable future. We don’t think customers will have meaningful options besides continuing to rely on incumbent aircraft suppliers.
BA Bears Say
- Boeing’s reputation for engineering prowess may have taken a permanent hit since repeated manufacturing flaws in 737 MAX jets have hampered the assembly pace and disrupted airlines’ and passengers’ schedules.
- In the long term, changed consumer behavior, especially among business travelers, could be unfavorable for aviation.
- Aircraft development is notoriously susceptible to development delays, hiccups, and cost overruns.
This article was compiled by James Ubi.
