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Boeing is the definition of “too big to fail,” but does that make it a good investment?
Let’s find out in this Boeing Stock Forecast & Analysis.
What is Boeing?
Boeing Co. is a 105-year-old American multinational corporation that manufactures, designs, and sells the following:
- Telecommunication equipment
Boeing provides leasing and product support services too.
Boeing separates these operations into four segments: Commercial Airplanes (BCA), Defense, Space, and Security (DSS), Global Services (BGS), and Boeing Capital (BCC).
It is among the largest aerospace manufacturers and defense contractors in the world. Boeing is the largest exporter in the United States by dollar value.
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Boeing Stock Investment Potential
#1. Military-Industrial Complex
Boeing is a major component of the military-industrial complex, or “MIC,” which describes the relationship between a nation’s military and the industry that supplies it.
In addition to Lockheed Martin, Northrop Grumman, and Raytheon, Boeing has a vested interest in the United States’ war posture and policy.
In 2020, approximately 30% of Boeing’s revenue ($27.4 billion) came from its Defense, Space, and Security segment in the form of government contracts.
There is no shortage of funding for these contracts; behind social security, the U.S. defense budget is the country’s largest expense, amounting to an estimated $934 billion for FY 2021.
The following describes Boeing’s success in the defense sector:
Little Competition + Guaranteed Government Expenditure + Continued Wartime
War isn’t stopping. The government isn’t going to decrease its defense budget. And there are only a handful of companies on the industry side of the MIC. Boeing wins.
#2. Travel Demand
Boeing’s main business segment, Commercial Airplanes, accounts for half of its total revenue, coming in at $45.6 billion in 2020.
This segment was ravaged during the pandemic as domestic and international flights were grounded, resulting in little demand for the airline products and services that Boeing provides.
However, the need for Boeing’s core offerings will ramp up as the global economy reopens and travel resumes.
#3. Too Big to Fail
As previously mentioned, Boeing plays a critical role in the national security of the United States. Moreover, it is vital to the country’s global trade and commercial travel.
More than 10,000 Boeing-built jetliners are in service worldwide, which is nearly half the world fleet. An astonishing 90% of the world’s cargo is carried onboard Boeing planes.
The U.S. economy cannot operate without its airliners, who would struggle to operate without Boeing — the government has set a precedent of bailing out the airline industry during periods of turmoil.
Boeing is too big to fail and one of the more apparent versions of crony capitalism in the markets today.
Boeing Stock Moat
A company’s moat refers to its ability to defend its market share and profitably from its competition.
Boeing’s moat is pretty unique; it’s defended by the world’s strongest military.
While there are many moving pieces in the military-industrial complex, most resources and contracts aggregate to a minority of players. Boeing is one of these players.
The MIC is not vulnerable to small disruptor startups because of the high barriers to entry in this market.
SpaceX is the exception that proves the rule — and we don’t expect many more SpaceX’s.
Boeing Stock Analysis
Let’s look at Boeing’s Q1 2021 earnings and hear from the company’s executives:
- Loss per share: $1.53 adjusted vs. $1.16 loss expected
- Revenue: $15.22 billion vs. $15.02 billion expected
This was Boeing’s sixth consecutive quarterly loss. Executives blame production issues and the weak jetliner market.
Other struggles include a $318 million pretax charge related to issues with a supplier for 737 planes used for Air Force One.
In November 2020, the FAA lifted its 20-month grounding of Boeing’s most popular jet, the 737 Max, following its investigation of two crashes that killed 346 people.
However, Boeing recently ran into more problems with the 737 Max. This past April, it paused deliveries and grounded 100 jets after finding electrical issues on some of the planes.
CEO Dave Calhoun believes there will be an uptick in U.S. travel given the successful vaccine rollout but expects international travel to stagnate for a few years.
“The recovery is gaining traction but remains uneven,” he said in the call.
Boeing stock fell 3% following the call but remains positive on the year.
Boeing Stock Competition
While there is a limited number of companies in this space, competition is fierce. Here are Boeing’s top competitors:
- Airbus (EADSY)
- Raytheon (RTX)
- Lockheed Martin (LMT)
- United Technologies (UTX)
- Northrop Grumman Corporation (NOC)
- GE Avionics (GE)
- General Dynamics (GD)
- Safram (SAFRY)
- Bae Systems (BAESY)
The Commercial Aircraft Company of China (CAMOC) represents a massive threat to Boeing’s business in China. Historically, Chinese airliners have relied on Boeing and Airbus for commercial airplanes.
COMAC is awaiting approval of its aircraft and has partnered with U.S.-based General Electric.
Boeing Stock Bear Case
#1. Continued 737 Struggles
The 737 MAX fleet was grounded in March 2019 following two crashes that killed 346 people.
Investigations revealed that Boeing covered up a known defect in the planes’ Maneuvering Characteristics Augmentation System. Boeing was charged with fraud and paid $2.5 billion in fines.
The grounding halted the delivery of about 450 planes during the investigation. Uncertainties caused production to slow as well.
Twenty months after the crashes, the FAA cleared the MAX to resume service, subject to a list of mandated design and training changes.
However, the MAX continues to struggle. On April 29th, 2021, the FAA announced an investigation into the cause of a manufacturing problem that resulted in an electrical grounding issue on multiple 737 MAX planes.
Boeing called for more than 100 MAX planes to be taken out of service earlier in April for reasons unrelated to the 2018 and 2019 crashes.
#2. U.S. and China Trade Relations
Boeing’s CEO Dave Calhoun is calling on the Biden Administration to restore trade relations with China, citing the importance of China’s aircraft orders for the long-term of the company.
The U.S. aerospace industry depends heavily on Chinese orders. Boeing sells nearly a quarter of its jetliners to China.
While most countries have followed the FAA’s guidance on the MAX, China has yet to recertify it for flight.
Some “industry observers” believe this delay is a retaliation by Chinese authorities.
Calhoun emphasizes the “importance of getting the relationship right” and is confident a restored order flow from China will help Boeing’s production rates.
See: Tesla Stock Analysis
Boeing Stock Allocation in Your Portfolio
Determining your optimal allocation to Boeing stock depends on your investing goals and time horizon. This means BA might be great for some and bad for others.
Regardless, the following questions might help you decide on the right amount of Boeing stock to buy if any:
- Is BA’s investment performance too correlated to the success of the 737 Max?
- Can Boeing recover from its 737 crashes and mishaps?
- Will other defense contractors destabilize Boeing’s position in the MIC?
- Will Boeing ever reach its 2019 highs again? And does it have to?
- Will Boeing play a profitable role in the developing space exploration market?
- Can Boeing’s Commercial Airplane segment thrive if U.S. & China trade tensions continue indefinitely?
- Is there better upside in other investments?
- Will Boeing outperform the S&P 500, Nasdaq-100 (QQQ), and bitcoin over the next ten years?
- Is Boeing on the right side of aerospace automation?
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Boeing Stock Forecast FAQs
Is Boeing a good stock to buy?
Many consider Boeing (BA) a good stock to buy because it is deeply entrenched in the airline and defense industries. It manufactures planes for airliners to fly and provides defense, space, and security services for the United States military.
Is Boeing stock a buy, sell, or hold?
Boeing stock is a buy, sell, or hold depending on various factors, most recently the status of its 737 MAX fleet. However, Boeing stock’s recent decline might be a good buying opportunity for long-term believers in the company.
Will Boeing ever recover?
Boeing stock reached as high as $440 per share before falling to $95 in just a few months. It’s uncertain whether or not Boeing will ever recover to those highs, but it’s up 167% from those lows just over a year ago.
Does Boeing stock pay a dividend?
Boeing does not pay a dividend and is unlikely to do so anytime soon. It is currently a cash flow negative business and does not have excess capital to distribute to shareholders.
Bottom Line: Boeing Stock Forecast
If Boeing goes bottom-up, we’ll probably have bigger problems than the price of its stock.
But that in and of itself doesn’t necessarily make the stock a buy.
This article is for informational purposes only. It is not intended to be investment advice.