Boeing’s safety scares mask bullish signals from strong orders

Boeing Co. may be careening from crisis to crisis, but Wall Street analysts still see hope on the horizon even as investors race away from the stock. 

The reason for the optimism? A robust book of orders that should keep cash flow steady even after a major chunk of fuselage fell off one of its planes. 

“Boeing’s reputation is tarnished right now but it is also protected because its customers have so little choice,” said Nicolas Owens of Morningstar. “That is why we say they have a wide moat. They are protected because their customers cannot vote with their feet.”

The company’s latest issues began on Jan. 5 when a panel blew out of one of its 737 Max 9 jets operated by Alaska Air in the middle of a flight, leaving a gaping hole in the fuselage. Boeing’s Max planes had already been in the news after crashes in 2018 and 2019 killed 346 people. This near disaster prompted a regulatory probe and a grounding of the aircraft, which sent the company’s shares plunging 15% since the incident. By comparison, the S&P 500 is up 3.6% over the same span. 

But despite all that, Boeing analysts have barely budged in their average 12-month price targets for the stock, pushing it down just 3% to $265.25, according to data compiled by Bloomberg. The shares closed Tuesday at $211.50.

It’s easy to see where the hope is coming from. Travel experts are expecting a boom in global demand for flights, and Airbus, Boeing’s top competitor, is already sold out into the end of the decade. With the only other competition coming from China, where manufacturers have their own safety issues, the skies appear to be clear for Boeing — as long as it can keep its planes from breaking apart.

After the Alaska Air debacle, the Federal Aviation Administration opened an investigation. Travelers were terrified as carriers canceled flights en masse. Boeing’s chief executive officer Dave Calhoun is meeting with senators in Washington, DC, this week, in a possible damage control mission, people familiar with the matter told Bloomberg.

Still, that didn’t stop Akasa Air, one of India’s newest airlines, from ordering 150 Max jets last week. While the purchase does not include the Max 9 variant, Boeing predicts India’s emerging cohort of first-time fliers virtually guarantees that it will remain South Asia’s leader in air-traffic growth. 

The result for Boeing: a steady stream of orders and robust cash flow, a key metric analysts use to assess a company’s prospects. While the average Wall Street estimate for Boeing’s 2024 free cash flow is currently down 2% relative to a month ago, for 2025 and beyond it is almost flat over the same period. 

In fact, Boeing’s free cash flow is still estimated to jump more than 60% year-over-year in both 2024 and 2025, before slowing down to a more normal pace. For investors, that has to be considered a win after several disruptive years that included the fatal crashes in 2018 and 2019 and subsequent grounding of the planes, as well as the Covid pandemic shutdowns that halted air travel.  

All that being said, risks remain. On Tuesday, United Airlines Holdings Inc. said it removed the Max 10, the largest 737 Max model, from its internal plans, while Alaska Air said it found loose bolts on “many” of its Max 9 aircraft. Investors and analysts will also get the fuller picture of the crisis when Boeing reports its fourth-quarter results on Jan. 31, since the company has been restricted in what it can share publicly by a pre-earnings quiet period.

“What we are worried about most right now is that this issue metastasizes,” Seaport Research Partners analyst Richard Safran said in an interview. 

At least two analysts have downgraded Boeing’s stock in the last two weeks, noting that the steps needed to mitigate safety risks, ensure more quality control and comply with new regulatory requirements may stymie aircraft delivery, dragging down the cash flow outlook. In addition, the stock selloff has wiped out over $22 billion from Boeing’s market valuation since Jan. 5.

Some, however, say the market could be overreacting. For example, Jefferies analyst Sheila Kahyaoglu said Boeing is slated to produce about 75 Max 9 planes through the end of this decade, which translates into about $750 million in free cash flow. Comparing that to the valuation hit, she said, it looks like “the market is pricing in a pretty negative case.”