The medium-term outlook is essential for investors eyeing Boeing (NYSE: BA). While current standing matters, investors are watching the horizon as they consider what Boeing could become. Management’s 2025/2026 targets, presented in November 2022, herald a multiyear increase in airplane production and a substantial boost in Boeing defense, space, and security (BDS) profit margins, culminating in $12 billion in segment operating cash flow. This translates to an anticipated $10 billion in free cash flow (FCF) by 2025/2026, once $2 billion in capital spending is factored out.
Boeing’s Medium-Term Vision
These targets are pivotal to Boeing’s future. However, the company is currently facing challenges in meeting these milestones, which have prompted delays in its 2024 guidance. Boeing’s recent investor day presentation outlined expectations of 400-450 Boeing 737 deliveries in 2023 to achieve a production rate of 50 per month in 2025/2026. Unfortunately, Boeing fell short of its 2023 delivery target, having only delivered 396 planes, reflecting ongoing manufacturing quality issues. These challenges have negative implications for its medium-term strategy, leaving investors seeking reassurance from management, who are remaining cautiously optimistic about meeting the 2025/2026 goals.
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Challenges in Timely Milestone Achievements
Boeing’s timeline for achieving the $10 billion target has significant implications for the stock’s investment proposition. An expected return of about 56% could be realized if the $10 billion FCF target is met at the start of 2025. However, the longer it takes to reach this goal, the lower the annual return, impacting investors’ long-term valuation considerations. Wall Street analysts anticipate Boeing hitting the $10 billion target sometime in 2026, indicative of the bearing this timeframe has on the investment landscape.
Image source: Getty Images.
Looking Beyond the Horizon
Boeing is in dire need of generating $10 billion in FCF to clear its consolidated debt of $52.3 billion and lay the groundwork for future investments, considering it doesn’t expect to have a new plane in place before 2035. While the company is expected to be in a better position in a few years, it’s crucial for Boeing to demonstrate several quarters of robust execution to dispel investor doubts and elevate its operational performance.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group, Lockheed Martin, and RTX. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
