‘Load Up,' Says Douglas Harned About Boeing Stock
Back in 2023, Boeing (NYSE:BA) appeared to be well-positioned to put recent woes behind it. The company was recovering from the aftermath of the 737 MAX crashes and looked on track to generate $10 billion in free cash flow by 2025. However, that outlook changed dramatically in January 2024, when a door panel detached mid-flight from an Alaska Airlines 737 MAX 9.
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While initially thought to be an isolated incident, subsequent investigations – amid intense FAA scrutiny due to Boeing's past MAX issues – revealed deeper, systemic problems within Boeing's manufacturing processes. Other challenges included 787 production problems, certification delays for several models, and major leadership changes.
Additionally, in the summer of 2024, supply chain issues hampered production of the 737 and 787, followed by a strike by the Machinists Union in September that shut down Boeing's Puget Sound operations. The strike did not come out of the blue, but nevertheless, Boeing was poorly prepared.
The company's challenges were made worse by ongoing underperformance in its Defense & Space Systems (BDS) division, which recorded financial charges in every quarter of 2022, 2023, and 2024.
Yet, despite the storm clouds, Bernstein analyst Douglas Harned sees a silver lining. He argues that now might actually be the perfect moment for investors to swoop in and grab Boeing shares while sentiment remains grounded.
'Boeing is now making the progress it needed for the growth trajectory we expected before the Alaska door plug accident in January 2024,' the analyst said. 'While we cannot assume all risks are gone, after high FAA scrutiny, BCA should be on a much firmer path than in 2023.'
Harned continues to expect 737 MAX production will reach 38 aircraft per month by July – right in line with management's projections from the Q1 earnings call. Encouragingly, the updated guidance for the 787 exceeded his expectations, with production expected to climb to 7 per month before year-end, thanks to resolved quality and heat exchanger supply issues.
As for the 737, Boeing CEO Larry Ortberg floated the possibility of ramping up to 42 per month by year-end, pending FAA cooperation. Harned, taking a more cautious view, assumes that milestone will slip to January. The analyst is also projecting steady production increases to 47, 52, and eventually 57 per month, roughly every nine months, even though Boeing's own targets are more aggressive.
'But,' Harned goes on to add, 'we prefer to be conservative, as Boeing has not done such rapid rate breaks before. All of this is against a backdrop of a duopoly with demand that should outstrip supply through the decade.'
Meanwhile, after years of BDS setbacks, there were no new financial charges, marking a positive shift. More significantly, Boeing's F-47 contract win has revitalized its defense division.
On the downside, there are tariffs, higher BCA costs, and lingering 787 interior issues to consider. Certification risk also remains for the MAX-7 and MAX-10, and halted China deliveries are a headwind, though the planes could be remarketed.
All told, the positives outweigh the negatives, and that merits an upgrade. Harned's rating on Boeing shares goes from Market Perform (i.e., Neutral) to Outperform (i.e., Buy), while his price target also goes from $181 to $218, suggesting shares will gain ~20% over the coming months. (To watch Harned's track record, click here)
Elsewhere on the Street, Boeing stock receives an additional 14 Buys, 3 Holds and 1 Sell, for a Moderate Buy consensus rating. Going by the $200.47 average price target, the shares will appreciate by 10% over the coming months. (See Boeing stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a tool that unites all of TipRanks' equity insights.
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