Despite relative strength across the major stock market indices so far in 2024, one stock that hasn't fared so well is Boeing(NYSE: BA). A little more than halfway through the year, shares of the aerospace company have plummeted roughly 30%, making it one of the worst performers in the Dow Jones Industrial Average. From a lackluster financial performance to a litany of public relations disasters, Boeing seems to be caught in some prolonged turbulence.
Let's take a look at what is going on at the company and assess if now is an opportunity to buy the dip, or if investors are best off avoiding Boeing right now.
What is going on at Boeing?
Boeing has been the center of attention in the aviation industry for several months now. Earlier this year, the company faced some harsh criticism after a passenger door blew out on one of its 737 jetliners during an Alaska Airlines flight. At the time, this was some pretty jarring news. However, little did investors know that this would be just the first in a series of dominoes to fall for Boeing.
Throughout the year, a number of Boeing whistleblowers have emerged, citing major concerns regarding quality assurance and manufacturing controls at Boeing.
If this weren't enough to dampen investor enthusiasm, more recent news has highlighted that a helium leak on Boeing's Starliner rocket capsule has left two astronauts stranded on the International Space Station (ISS).
Image source: Getty Images
Time to worry?
Despite the laundry list of negative media coverage surrounding Boeing, investors need to zoom out and consider a few key details.
First, the aviation industry is basically a duopoly between Boeing and Airbus. It would be shortsighted to think that demand for Boeing's jetliners will suddenly evaporate, leaving the company with little in the way of growth prospects.
Second, Boeing has an enormous government contracting business under its Defense, Space and Security segment. While public sector sales can be challenging to predict due to the lumpiness of these contracts, I would also say it's a rather sticky business.
Despite all the recent challenges facing Boeing as of late, I'd be really surprised if the U.S. government started pulling contracts away from one of its major defense partners.
Is now a good time to invest in Boeing stock?
What concerns me the most about Boeing is the company's cash flow situation.
BA Free Cash Flow (Quarterly) data by YCharts.
Per the chart, investors can see that Boeing is burning a fair amount of cash at the moment. Moreover, during the company's first-quarter earnings call, management explained that free cash flow in the second quarter is "expected to improve sequentially, but be another sizable use of cash."
Furthermore, management added that in the long run, "we remain confident in our ability to achieve $10 billion of free cash flow. However, given our continued focus on safety, quality and stability, we continue to expect that this goal will take us longer than we originally planned and later in the 2025/2026 window."
The bulk of my skepticism around investing in Boeing stems from these comments. So far in 2024, Boeing has paid several hundred million dollars in fines related to the Alaska Airlines debacle, and is expected to plead guilty to the Department of Justice (DOJ) fraud investigation tied to two crashes of Boeing jets in 2018 and 2019.
But as the company increases its quality assurance and manufacturing controls, I think costs will continue to rise in the short term. Moreover, it's hard to know if any of the reputational damage will lead to any lost business for Boeing.
Nevertheless, rising costs combined with a series of hefty fines is undoubtedly taking a toll on Boeing cash flow -- which makes it harder for the company to grow.
While I don't see Boeing as a falling knife, I also don't really think the current price action is an opportunity to buy the dip. Management hasn't done enough to assure investors that better days are ahead. For now, I'd monitor Boeing's progress but would avoid investing in the stock.
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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.
