Is Boeing Stock a Buy Now?

Despite a miserable 2024, Boeing (NYSE: BA) stock has quietly run up 23.5% over the last three months. Is the start of an ongoing move upward or merely a recovery from an oversold position? Here's a look at Boeing's prospects in light of the company's recent fourth-quarter earnings report.

Boeing's mixed news

The recent earnings contained a mix of good and bad news. Starting with the good news, Boeing's management reassured investors about the company's most critical issue: the ramp-up in 737 MAX deliveries.

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Boeing's plan for 2024 was to stabilize the airplane's production rate at 38 a month and increase it thereafter. Unfortunately, a combination of the need to slow production to improve quality control, and a costly and disruptive labor strike related to a new contract meant Boeing fell far short of expectations.

That said, the recent update was a net positive, with CFO Brian West telling investors that "we've delivered 33 airplanes in January with four days to go" when discussing the 737. In terms of production, he also noted that all three production lines in Renton were working "and monthly production is already in the low to mid-20s for January," and he expected production on the 737 would be able to go above a rate of 38 per month "later in the year."

It's a positive update, and management confirmed the inventory (including fuselages from Spirit AeroSystems) was in place for the ramp-up to 38.

Data source: Boeing presentations. Chart by author.

Boeing's challenges remain

Unfortunately, there's quite a bit of bad news. While most investors focus on the high-profile commercial airplane business, it's easy to lose sight of the ongoing challenges in the defense business, Boeing Defense, Space & Security (BDS).

The bad news is that the segment reported another loss and $1.7 billion in charges on its problematic fixed-price programs, primarily on its KC-46A (refueling tanker) and T-7A (Red Hawk training airplane).

Image source: Boeing.

Boeing's management divides its defense business into three categories. The largest, representing about 60% of revenue, is its core business, which generates mid- to high-single-digit profit margins. The second is its fighter and satellite programs, representing 25% of revenue, which also reported a loss in the quarter. The third is the highly problematic fixed-price development programs, representing 15% of revenue.

Despite being the smallest bucket of the three, these programs have caused multibillion-dollar losses, multiyear delays, and multibillion-dollar charges and cash outflows. It's a sign of how difficult they are that management's long-term aim is merely to get them to break even and not to consume cash.

Data source: Boeing presentations. Chart by author.

During the earnings call, management was asked when BDS would turn cash-flow positive. West said BDS could hit breakeven in cash flow in 2026 or 2027, but not this year. However, given the seemingly never-ending series of charges on the fixed-price development programs, it's hard to have much confidence in an early return to profitability of cash flow at BDS.

Is Boeing stock a buy?

Boeing is making progress, and the news from Boeing Commercial Airplanes (BCA) on the 737 MAX is precisely what investors want to hear. In addition, BCA continues to win significant airplane orders, and a backlog worth half-a-trillion dollars means Boeing has every opportunity to execute well and start generating cash flow in the future.

Image source: Getty Images.

However, according to Wall Street analysts, Boeing, with $53.9 billion in consolidated debt ($26.3 billion in cash and equivalents), is still set to have a $5 billion cash outflow this year. Moreover, Boeing did not report any long overdue progress at BDS. That's a cause for concern, and given the stock's run-up, cautious investors may want to wait until management can definitively outline the pathway to profitability and cash-flow growth at BDS before buying in.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.