Boeing: ~20% Discount To Airbus But Quality Issues Keep Me On The Sidelines

Summary

• Based on my estimates for FY25 Free Cash Flow Boeing trades at a roughly 7% FCF yield, representing a sizeable ~22% discount to Airbus.
• I mainly attribute this to a lack of visibility for management's 2025/2026 operational and financial targets in light of ongoing supply chain problems.
• The Alaska Airlines incident has reinforced negative public sentiment toward Boeing which I view as further contributing to the overhang that prior quality issues have created over the stock.
• Nevertheless, the ongoing post-Covid aviation recovery clears the demand side of the equation with record order flow and a $391bn backlog, leaving Boeing's near-term trajectory almost entirely within the scope of its own execution.
• I see a largely equal risk/reward for Boeing shares as an estimated ~10% price upside is balanced by significant execution risk due to ongoing quality issues and Airbus offering a cleaner equity story overall. Initiate at equal-weight (PT $236).

Wirestock

In my view, The Boeing Company (NYSE:BA) currently is what I estimate is the market's most extreme "show me" story. With still negative profitability in both book profits and cash generation and over $40bn in net debt, Boeing's entire investment proposition hinges on

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.