Title: Three Strategies for Boeing's Success in 2025
Boeing's journey over the past few years has been anything but a walk in the park, and the recovery under new CEO Kelly Ortberg isn't going to be a quick fix. However, there's a compelling case for the stock based on its impressive backlog. Boeing Commercial Airplanes (BCA) boasts a backlog of about $428 billion, Boeing Defense, Space & Security (BDS) has a $62 billion backlog, and Boeing Global Services (BGS) has a $20 billion backlog.
Now, let's ponder over what investors can anticipate from Boeing in 2025.
Boeing's Challenges and Opportunities
It's evident what Boeing needs to do - expand its margin at BGS while ramping up production on the 737 MAX post-strike. Boeing can potentially stabilize production at an initial rate of 38 a month. Meanwhile, BDS must curtail the inflow of charges and losses on its costly fixed-price projects.
However, there are a few additional factors that need consideration. These include how the company communicates with investors and constructs a narrative around the stock.
Meeting Cash Flow Guidance
Currently, Boeing has an enormous consolidated debt of $57.7 billion and $10.5 billion in cash and marketable securities. Unfortunately, cash outflows are on the horizon. Analysts expect a $14.2 billion outflow this year due to losses from BCA and BDS. However, Boeing CFO Brian West suggested that the first half would be a cash-using period, with positive cash inflow during the second half. If Boeing achieves this goal, it could significantly alter the stock's narrative, encouraging investors to predict better scenarios for cash generation and debt retirement.
Ortberg's Portfolio Evaluation
Another opportunity for improving the investment narrative is by scrutinizing what businesses are core and which are non-core at Boeing. In the fourth-quarter earnings call, Ortberg stressed the need to streamline the portfolio to focus on Boeing's strengths. This could involve raising cash through selling unnecessary businesses, cutting costs, or even terminating projects.
Underpromise, Overdeliver
Larry Culp's approach to GE, involving issuing conservative guidance and surpassing expectations, proved to be successful. Unfortunately, Boeing is unlikely to meet Dave Calhoun's $10 billion free cash flow target for 2025/2026. As such, Ortberg must create a fresh financial outlook for investors. The focus should no longer be on Calhoun's ambitious target but on a more achievable and realistic financial outlook.
Additionally, Boeing's estimate at completion process needs to be improved to ensure that BDS's performance aligns with management's guidance. This is a task within Boeing's control.
Assuming Boeing is capable of addressing these three considerations, the investment narrative around the stock could transform by 2025. Investors might start viewing the company as a cash-generating machine well-equipped to meet its numbers. This shift in perception could positively impact the stock's valuation.
Investors may be interested in how Boeing manages its finance, especially with its significant debt of $57.7 billion. If the company can successfully meet its cash flow guidance and achieve positive cash inflow in the second half of the year, it could improve its financial standing and attract more investment. Furthermore, the evaluation of Boeing's portfolio and streamlining of non-core businesses could generate more cash, potentially boosting the company's financial performance and appealing to investors interested in investing in the stock market.
