It's been an extremely challenging few years for Boeing (NYSE: BA), and its recovery under new CEO Kelly Ortberg isn't going to be a quick fix. Still, there's a bullish case for the stock based on a backlog of about $428 billion at Boeing commercial airplanes (BCA), $62 billion at Boeing defense, space & security (BDS), and $20 billion at its aviation services business, Boeing global services (BGS).
The backlog is there, and Boeing continues to win orders, so what can investors expect from Boeing in 2025?
Boeing's challenges and opportunities
On a practical level, it's obvious what Boeing needs to do in all three segments: continue expanding its margin at BGS while ramping production on the 737 MAX now that the strike is over. Boeing is in a position to stabilize production at an initial rate of 38 a month. Meanwhile, BDS must stem the flow of charges and losses on its problematic fixed-price projects.
All of these things are necessities for the bullish case. Still, there are a few other considerations that relate to how the company communicates with investors and helps build a narrative around the stock.
Meet the cash flow guidance
With consolidated debt of $57.7 billion and cash and marketable securities of $10.5 billion at the end of the third quarter, Boeing's last need is to see ongoing cash outflows. Unfortunately, that will happen this year, with Wall Street analysts estimating a $14.2 billion outflow due to losses from BCA and BDS -- and it gets worse. Boeing CFO Brian West told investors that "we expect 2025 to be another use of cash." For reference, Wall Street expects a $2.7 billion outflow next year, as the company struggles to ramp airplane production and works through loss-making defense programs.
Still, while West's commentary on the third-quarter earnings call shouldn't be taken as formal guidance, he said, "We expect the first half to be a cash usage and the second half to turn positive and then build real momentum as we exit the year."
As such, if Boeing can achieve this aim, the narrative around the stock would change going into the second half of 2025, and investors would start penciling in more optimistic scenarios for Boeing's cash generation and debt retirement.
Image source: Getty Images.
Ortberg's portfolio evaluation
Another source of improvement in the investment narrative around the stock comes from Ortberg's evaluation of what businesses are core and non-core at Boeing. He was clear on the earnings call that he needs to streamline "the portfolio to do what we do well."
Raising cash and cutting costs by exiting less profitable businesses is one way to improve investors' perceptions of the company. Moreover, it does not need to be a whole business. For example, RTX's defense business, Raytheon, terminated a fixed-price development contract in the second quarter, taking a $575 million charge in the process. Boeing may take similar rationalizing actions, even if they fall short of walking away from problematic programs.
Underpromise, overdeliver
When Larry Culp took over at the former General Electric, the first thing he did was firmly grasp the investment narrative by issuing a wide range of arguably conservative guidance that the company was able to hit or surpass. That changed the way investors thought about the stock.
Unfortunately, Boeing is highly unlikely to meet the $10 billion in free cash flow (FCF) target for 2025/2026 that former CEO Dave Calhoun laid out in late 2022. Calhoun left office without having taken the guidance down, and clearly, Ortberg needs to issue a new financial outlook for investors.
Furthermore, the issue doesn't just involve BCA's manufacturing quality issues or the strike action; BDS has consistently taken charges on problematic defense contracts far more frequently than investors expected.
Ortberg discussed the matter on the latest earnings call and told investors that Boeing's estimate at completion (EAC) process needs to improve. That's the first step in ensuring BDS performance aligns with management's guidance. This is something in Boeing's hands.
Boeing in 2025
The three considerations discussed above are within management's capability and would help improve investor perception of Boeing. If so, the narrative around the stock should change as investors see Boeing generating FCF again in the second half.
Portfolio restructuring could improve its margin profile, and investors will start penciling in valuations with confidence that Boeing will hit the numbers rather than pouring doubt on management's ability to deliver. As such, investor perception of the stock could improve dramatically in 2025.
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