Where will Boeing be in 3 years?

how do things look Boeing (BA 0.84%) in three years? The company’s management gave some insight into the matter at an investor meeting in early November. Taken at face value, financial projections make the stock look very attractive. But investments are rarely that simple, and Boeing has suffered a string of operational mishaps, bad luck, and poor decisions in recent years. So let’s take a closer look at where Boeing is in a few years.

Boeing forecasts make the stock look very valuable

Management has decided to make free cash flow (FCF) a key metric to track and judge. FCF is the remainder of net income after deducting required working capital and capital expenditures. This is his one-year cash flow that can be used to return investors (via dividends or share buybacks), raise funds, or pay down debt as in Boeing’s case.

FCF has been on the decline in recent years, so it should be a key focus for Boeing investors. At the same time, Boeing’s debt ballooned as it had to contend with grounding the 737 MAX, travel restrictions that rocked the airline industry, and a series of cost overruns in defense contracts.

Data from YCharts

The good news is that Boeing’s FCF target for 2025-2026 makes the stock look good. Management is targeting his $12 billion in operating cash flow, and after capital spending of $2 billion, from 2025 to 2026 he targets his FCF to be his $10 billion I’m doing it.

To put this number into context, Boeing has a market cap of just $114 billion, meaning Boeing will generate about 8.8% of its market cap in FCF in 2025-2026. This is a great valuation as it means Boeing can pay his 8.8% dividend yield. And we are still growing our business. But Boeing’s priority is to maintain its debt rating by paying down its debt and investing in its business.

What could go wrong with Boeing’s plan?

Everyone rejoices when a plan comes together, but Boeing has a lot of work to do before it becomes a reality. Segment details are shown in the table below. Boeing plans to reach segment operating cash flow of $14 billion from 2025 to 2026. Then there’s the $2 billion cash tax “dragging”, which is $12 billion of operating cash flow, and then he’s $2 billion of capex (as mentioned above) that goes into his $10 billion of his FCF. leads to

Data Source: Boeing.

One uncertainty in these projections is BCA’s ability to increase production of 737 and 787 aircraft. The company has 3,510 Boeing 737s and 413 Boeing 787s, but it has no backlog problems and the commercial aerospace industry is recovering. However, Boeing will need to increase 737 production from about 31 per month in 2022 to 33-37 in 2023 to meet its 2023 target of 400-450 Boeing 737s. I have. BCA cash flow target.

This is tricky due to supply chain constraints. Of particular note is the capability of (a joint venture with) CFM International. general electric) Supplying enough engines in the face of severe supply chain challenges is a question mark.

A second uncertainty is BDS’ ability to handle fixed-price programs that have caused billions of dollars in cost overruns and damaged the company’s reputation. Management claims that major programs such as the KC-46 tanker, MQ-25 unmanned aerial vehicle and VC-25B (Air Force One) will be largely de-risked by 2025. It will take several years to see if Boeing can overcome its recent underperformance.

Boeing in a few years

Boeing is likely to be in better shape in the next few years.The recession will hit the company (especially the BGS segment), but BCA has enough backlogs to handle a modest number of cancellations. Ultimately, it essentially boils down to internal execution at BCA and BDS. That’s something investors are watching closely.