Shares of The Boeing Company BA have rallied 12.8% over the past month, outperforming the S&P 500’s loss of 0.7%. The stock also surpassed the Zacks aerospace-defense industry’s decline of 1.3% and the broader Zacks Aerospace sector’s deterioration of 2.5% in the said time frame.

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The company’s one-month return also outpaced those of two key commercial jet makers, Embraer ERJ and Textron TXT, and its arch-rival, Airbus Group EADSY. Notably, shares of Embraer and Textron lost 4.2% and 10.4 %, respectively, while those of Airbus gained 1.7%.

This aerospace maker has recently been in the news due to a handful of contracts it secured in the commercial aerospace and defense industries. The stock also came into the spotlight this month with the successful launch of its O3b mPOWER satellites, which are intended to further enhance SES’ ability to deliver high-speed, reliable connectivity to global users.

The aforementioned news undoubtedly reinstated investors’ confidence in BA, which has been staggering at the bourses for quite some time now, and this confidence was duly reflected in its share price hike.

However, considering the long-running peril that this American jet manufacturer has been in lately, a prudent investor, especially a risk-averse one, should assess the stock’s future potential and examine any associated investment risk (if any) before taking action.

The steadily rising demand for air travel and the replacement of aging fleets are expected to drive the need for new jets and aftermarket services, serving as key growth drivers for Boeing. Notably, the company’s new aircraft, offering 25% to 40% improved fuel efficiency and reduced emissions compared to older models, positions it well to capitalize on this trend.

To this end, Boeing projects a $4.4 trillion market opportunity in commercial aviation support and services over the next two decades. Considering this, BA’s jet service business, with a robust backlog of $20.45 billion (as of Sept. 30, 2024), is poised for significant long-term growth.

The outlook for the aerospace giant’s defense business also remains optimistic. In the third quarter of 2024, its defense unit secured key contract awards worth $8 billion, resulting in a solid backlog of $61.62 billion for this segment as of Sept. 30, 2024.

Such solid backlog counts boost revenue growth prospects for Boeing and thereby bolster its bottom-line performance.

In line with this, the consensus estimate for BA’s long-term (three-to-five years) earnings growth rate is pegged at 19.3%, higher than the industry’s level of 14.6%.

A quick sneak peek at the company’s 2025 estimates also mirrors similar growth prospects.

Boeing’s estimate for first-quarter 2025 sales reflects an improvement of 10.5% from the year-ago quarter’s reported figure, while that for full-year 2025 sales indicates a rally of 22.5%. A similar improvement trend can be observed from its earnings estimates.

This offers some hope for the stock to rebound next year from the peril in 2024.

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While Boeing offers strong growth prospects, it also faces significant challenges that could impact its operational performance, which investors should carefully consider before investing in the stock. A notable concern is the company’s 737 Max jet program, which has been a major growth inhibitor in recent years and may continue to affect BA’s growth in the near term.

Despite resuming deliveries and receiving new orders for the aircraft, the recent Alaska Airlines incident and Boeing’s subsequent measures, including slowing production to address manufacturing quality control issues, might pose a substantial challenge to the growth of its commercial airplane segment in the upcoming quarters.

In addition, industry-specific challenges, like a shortage of skilled labor and steadily rising fuel prices, pose a threat to Boeing, especially to its commercial airplane division. Moreover, due to persistent supply-chain challenges, aircraft manufacturers and aerospace parts suppliers are struggling to keep up with the soaring demand, thereby limiting the potential for timely delivery of finished aircraft.

The stock’s trailing 12-month return on invested capital (ROIC) not only lags the industry’s return but also reflects a negative figure. This indicates that the company’s investments are not generating sufficient returns to cover its costs.

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To conclude, investors interested in Boeing should wait for a better entry point, considering the stock’s poor ROIC and persistent industry challenges. BA currently has a VGM Score of F, which is also not a very favorable indicator of strong performance.

However, those who already own this Zacks Rank #3 (Hold) stock may continue to do so, considering its recent share price hike and solid growth potential in 2025.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Boeing Company (BA) : Free Stock Analysis Report

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