Once upon a time, Boeing Co. (BA, Financial) and Airbus SE (XPAR:AIR, Financial) were neck-and-neck when it came to the design, production and sale of commercial aircraft. This jet airliner duopoly has been around since the 1990s, with Airbus beginning as a pan-European consortium and Boeing acquiring its main U.S. rival McDonnell Douglas in 1997.
In the decade from 2007 through 2016, Airbus received orders for 9,985 aircraft and delivered 5,644, while Boeing received orders for 8,978 aircraft and delivered 5,718. Constantly seeking to gain an edge over each other in this stalemate, the companies even regularly accused each other or receiving unfair government aid.
Yet Boeing’s 737 Max disaster was what at last provided the opportunity Airbus needed to pull ahead. Not only did rushing the 737 Max to market too fast cause fatal crashes, thereby tanking Boeing’s reputation, it also caused the temporary grounding of the plane, which hit Boeing’s earnings and balance sheet hard. It is not surprising that in 2021, Airbus booked a shocking 80% lead over its rival, delivering 611 planes compared to Boeing’s 340 deliveries.
As a result of its troubles, Boeing’s stock has underperformed Airbus’ significantly in recent years, causing some value investors to see Boeing as a turnaround opportunity. However, Boeing has forgotten that is business depends on engineering excellence, not financial engineering, and this loss of focus has potentially disastrous long-term implications. Moreover, the 737 Max fiasco destroyed its balance sheet, causing the company to make sweeping cost cuts instead of investing in the right resources to regain its edge.
All of this begs the question: Which stock is really the better value right now, Boeing or Airbus?
Boeing
Shares of Boeing currently do not have a price-earnings ratio because the company is losing money. At $144.46 per share on Oct. 28, the stock is trading at eight times its best-ever earnings year in 2018, so if it can someday return to match or excel its historical best, the stock could be a steal right now.
Even if Boeing achieves its historical high earnings again, though, said earnings will be less valuable to shareholders if the company cannot get its debt situation back to the same favorable level as in 2018. As the below chart shows, Boeing’s debt doubled in 2019 as the 737 Max crisis began to unfold. From there, it more than doubled again in 2020, though 2021 saw a slight decrease in debt that was paid down with cash flow. Its GuruFocus financial strength rating is 3 out of 10.
Boeing’s GuruFocus profitability rating is still a decent 6 out of 10 thanks to the tailwind of historical successes, though these metrics have taken a nosedive more recently. The operating margin and net margin used to be around the mid to high single-digits, but are now in the negatives.
Analyst estimates from Morningstar (MORN, Financial) see Boeing’s earnings per share rising to approximately $12.68 in 2025, or $10.61 without non-recurring items, which is a trend in the right direction, but means investors will have to take a very long-term outlook for this stock. The expected forward price-earnings ratio based on 2025 estimates is 11.39, or 13.60 without non-recurring items.
Airbus
On Oct. 28, Airbus traded around 106.12 euros ($105.74) per share with a price-earnings ratio of 21.52. This is 19.76 times the company’s best-ever earnings year in 2021. The stock’s median price-earnings ratio for the past decade is 22.74, so all in all, it seems fairly valued to slightly undervalued based on this metric.
Airbus’ balance sheet is in much better shape than Boeing’s. Cash is higher than debt based on the cash-debt ratio of 1.4. The chart below shows that while the company’s debt did increase in 2020, it remained lower than cash. GuruFocus gives the company a financial strength rating of 6 out of 10.
On the profitability front, Airbus has historically underperformed compared to Boeing, so it gets a GuruFocus profitability rating of 5 out of 10. However, it has improved more recently, with the operating margin and net margin around the same all-time highs as Boeing.
According to Morningstar analyst estimates, Airbus is expected to more than double its earnings from 4.97 euros in 2022 to 10.21 euros in 2025. That makes its expected 2025 forward price-earnings ratio 10.39 – yes, that iss lower than Boeing’s forward price-earnings ratio according to estimates from Morningstar analysts.
Takeaway
Due to the potential for a turnaround at Boeing, one could argue that the long-term value opportunity with this stock is greater, though the risk is also greater due to the fact that a turnaround is not guaranteed.
Based on earnings per share projections for both companies, Airbus and Boeing are about equally priced, with Airbus maybe being slightly cheaper, though as there is a high degree of uncertainty with earnings projections I would take this with a grain of salt. Adding in Airbus’ superior balance sheet and Boeing’s reputational damage, Airbus seems like the safer option compared to Boeing’s higher-risk scenario.
Personally, I would look for signs Boeing is regaining its focus on engineering excellence and quality before taking the plunge on it. Without that focus, the company is likely to keep losing market share to Airbus and other competitors. Prioritizing financial engineering over the engineering of its actual planes was what got Boeing into the 737 Max crisis and made it fall behind Airbus in the first place.
