Another day, another Wall Street update on Boeing (BA 3.47%) and another Boeing airplane incident. The latter concerns an engine cowling falling off a Boeing plane on a Southwest Airlines flight on Sunday. Consequently, the Federal Aviation Administration (FAA) will investigate the event.
The analyst update can be interpreted in two ways. A Sanford Bernstein analyst cut the price target on the stock by a whopping $32 to $240 in recognition of the company's headwinds. On the one hand, this is a net negative on the price target. On the other hand, Bernstein's rating on the stock remains outperform, and the updated target still represents more than 32% upside over the next 12 months to the current price.
Is Boeing stock a buy or not?
The update typifies the bull and bear debate around Boeing stock. The bullish case emphasizes the value case for the stock, based on the idea that it will hit its aim of $10 billion of free cash flow (FCF) in the 2025-2026 timeframe. The bulls argue that the stock is significantly undervalued with the market cap down to $111 billion.
However, there are three problems with this view. First, Boeing's manufacturing quality problems and disappointing defense performance are pushing out the date of the $10 billion in FCF, and the Wall Street consensus has Boeing missing the target with only $9.9 billion in 2026.
Second, much is made of Boeing's backlog and position in an effective duopoly with Airbus. That's fine, but delivering on the backlog is something Boeing must do, and that might come at the cost of margins, cash flow, and additional debt. As of the fourth quarter of 2023, Boeing's consolidated debt stood at $52.3 billion, with $16 billion in cash and marketable securities.
Third, the "effective duopoly" might be threatened if Boeing doesn't put itself in a financial position to develop the next generation of aircraft over the next decade.
All told, these issues suggest there are better ways to play a ramp in airplane production than by buying Boeing stock.
