Key Points
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Boeing aims for $10 billion in free cash flow in 2029.
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Its operational targets look conservative, implying significant upside potential for the stock if they are achieved.
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If Boeing (NYSE:BA) hits a few milestones, the company could look much stronger in a few years, potentially driving a substantial rise in its share price. Here’s what that could mean for investors dipping their toes into the market with a $500 investment in Boeing.
Boeing faces challenges, but the valuation is attractive
Management has set a medium-term target of $10 billion in free cash flow (FCF), and hitting it would show the company’s returning to what might be called “normalized operations.” In other words, it would mean ramping up production and deliveries of its narrow-body 737 MAX and its established wide-body 787, while certifying and making the first delivery of its new wide-body, the 777X.
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Unfortunately, the company disappointed on that front recently by pushing back expectations for 737 MAX production, and the stock sold off accordingly. Still, I think there’s reason to be optimistic based on Boeing management’s new guidance.
CFO Jesus Malave outlined that the “building blocks of a $10 billion” in FCF “on a normalized basis” means a delivery rate of 52 a month on the 737 MAX, a delivery rate of 10 a month on the 787, and “a delivery rate and positive cash generation on a 777X program.”
Boeing’s updated outlook
All those building blocks could fall into place and, in fact, be surpassed by 2029. First, management expects the 777X to receive certification, make its first delivery next year, and become cash-flow positive in 2029. Meanwhile, management expects to reach a production rate of 52 per month on the 737 MAX in the second half of 2027 and to transition to a production rate of 10 per month on the 787 this year.
Image source: Getty Images.
While deliveries usually lag production by a few months, these operational targets suggest the “building blocks” of $10 billion in FCF could be in place by the end of 2027 — implying Boeing could hit its FCF target earlier than in 2029.
As for valuation, $10 billion in FCF and a 20x price-to-FCF multiple imply a $200 billion market cap, or a 46% increase, meaning $500 invested now could be worth $730 in three years, with upside potential from a more aggressive ramp in 737 MAX production.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.
