Boeing recently received a lucrative order for 150 of its 737 jets from International Airlines Group. Boeing's new 737-8-200s and 737-10s are more fuel-efficient than previous models, which has spurred demand for the models.
Although this is good news for Boeing, it remains in question whether its recent orders are enough to leapfrog significant economic challenges. I believe the stock's key factors aren't well aligned for future success; here's why.
Boeing as a reopening play
Boeing is seen as an economic reopening play given that it's inextricably linked to the travel industry, which has been subject to far fewer pandemic travel restrictions lately. Additionally, airline manufacturing stocks are assumed to be a conviction plays during the summer months because of the holiday season effect.
Furthermore, Boeing has underperformed significantly during the height of the pandemic, which was exacerbated by a tax-loss sell-off towards the end of 2021. As a consequence, many analysts expected a recovery of Boeing stock during the earlier part of this year; however, matters have only gotten worse, with the stock declining by nearly 40% since the turn of the year.
Boeing as a reopening play is still debatable and remains a coin toss, in my opinion. In fact, I can't imagine that the stock would outperform the market just because of its reopening attributes.
Concerns about input costs
Boeing sits in the middle part of the airline value chain as it focuses on manufacturing. Thus, the company has faced significant pressure from resilient commodity prices and rising wage demands, all thanks to inflation.
To illustrate the effect that rising input costs have caused, Boeing's net cost per employee currently stands at $34,390. In addition, Boeing's aircraft are made up largely of aluminum and other ferrous metals, which are all at multi-year highs.
I could argue that the prices of raw materials would eventually decrease, perhaps if geopolitical tensions were to ease. However, more likely, a decrease in prices would be due to a slowdown in consumer spending, thus affecting Boeing's sales as well.
Lastly, while wages aren't affecting Boeing nearly as much as raw materials costs, they are less downward elastic compared to raw materials, which could see Boeing having to deal with above-average wage increases for the foreseeable future. Raw materials inflation may be temporary, but cost of living inflation is almost always permanent.
Valuation
From a valuation vantage point, Boeing stock isn't in that bad of shape. First of all, analysts forecast that the company's earnings per share will grow exponentially for the next 30 months, which could add residual value to its equity account.
Also, Boeing's price-sales ratio is in respectable territory and doesn't look overvalued at all.
The bottom line
Although Boeing has received a lucrative contract from International Airlines Group, the company is facing significant economic headwinds, which means its respectable valuation metrics are in vain. Furthermore, summer traveling likely isn't enough to substantiate a bullish claim for Boeing stock. Thus, I believe Boeing will probably see a further downturn for the rest of 2022.
