Because it suspended its dividend in 2020, Boeing (BA 3.75%) stock isn't a candidate for inclusion on the Dogs of the DOW list of beaten-down dividend payers. But there's no doubt Boeing has been a "dog" of a stock lately.
Hurt by quality concerns, slower production, whistleblower claims, and a recent management shakeup, Boeing stock trades down over 15% in the past year while the rest of the S&P 500 has surged more than 22%.
But RBC Capital Markets isn't ready to throw in the towel on Boeing stock -- not entirely.
Is Boeing stock a buy?
Citing expected slower deliveries of 737 aircraft going forward, RBC analyst Ken Herbert lowered his 12-month price target on Boeing to $215 a share, StreetInsider reported Tuesday. That implies a 26% upside from the current price. Herbert also stuck by his prediction that Boeing will "outperform" the S&P 500 over the next year.
Key to Herbert's thesis is the notion that Boeing can replace outgoing boss David Calhoun with a new CEO who will rise to the challenge and eventually become the leader who fixed Boeing. But that's easier said than done.
I won't deny that Boeing has things going for it, and it offers advantages a new CEO could find appealing. There are 5,568 Boeing planes on order -- sales the new CEO won't even have to work for! Boeing also has $4.4 billion in annual free cash flow -- a number that could more than double over the next three years, as airline travel continues growing after pandemic lockdowns.
But Boeing also has significant flaws. Its business model of outsourcing plane parts to third parties has blown up in its face and contributed to the problems with product quality that plague Boeing today. Bringing this production back in-house is doable, but it won't be cheap. And a Boeing stock burdened with $47 billion in long-term debt will be hard-pressed to pay for it.
Buying Boeing stock at 57 times earnings is an expensive bet that Boeing will succeed. I'm not as sure as Herbert seems to be.
