Why the Boeing Stock Price Has 36% Upside

Boeing stock priceFor all the violent swings in the Boeing stock price over the last month, you can't go wrong by loading up on its shares right now.

Boeing Inc. (NYSE: BA) stock is a compelling "Buy," for all the obvious reasons, of course.

After Lockheed Martin Corp. (NYSE: LMT) all but left the commercial airliner business, and Boeing bought up McDonnell Douglas in 1997, there's really only two places to go to buy into this more than $120 billion industry.

The Boeing and Airbus Group (OTCMKTS: EADSY) duopoly has turned the commercial jetliner industry into a slugfest for control of the skies and both see themselves tapping into a fast-growing market over the next two decades.

But simply being in a growing industry isn't enough reason to buy a stock.

After all, from 2001 to 2003 the commercial jetliner industry was reeling from the September 11 attacks, but also a general malaise in business. During this time it was painful to be a Boeing shareholder.

But luckily, today things look much brighter for the industry.

"The long-term outlook for this market is really good," Money Morning Executive Editor Bill Patalon said.

By Boeing's own estimations, the commercial jetliner market will be worth $5.2 trillion over the next 20 years, up from previous estimates of $4 trillion.

"That's one-third of the size of the U.S. economy. That's a lot of aircraft," Patalon said. "There's going to be a huge demand for jetliners over the next twenty years."

That demand is largely going to come from the need to replace the existing fleet of commercial aircraft. The planes currently occupying the skies can only do so for so long.

"The existing jets that are in fleets are going to get older," Patalon said. "They can only be cycled through takeoffs, high altitude pressurizing, depressurizing, bringing them down to land - they can only go through that cycle so many times before you start having metal fatigue and safety issues. And they're not fuel efficient anymore."

And here's how that translates to 36% upside for the Boeing stock price...

Dreamliner Will Drive Boeing Stock Price in Decades to Come

Before it lost its momentum, the Boeing stock price was surging. By Feb. 20, it hit a historical high of $157.30 - a 22.5% gain.

But a downgrade in February from Goldman Sachs and a Boeing earnings release where the company under-delivered on its free cash flow numbers pummeled the stock. The Boeing stock price fell to $141.04 by May 6 - a 10.3% retreat from its highs.

Boeing stock isn't new to these kinds of sudden negative shocks.

More recently, struggles with its 787 Dreamliner hurt the stock price.

In January 2013, a parked Japan Airlines 787 at Logan Airport in Boston caught fire. It wasn't carrying any passengers at the time, but faulty batteries caused the grounding of 50 Dreamliners.

The negative publicity continued throughout 2013, with another battery fire and two crashes in the summer.

But Money Morning's Patalon knew to look beyond the incidents when evaluating BA stock's value.

"I've seen these kinds of media 'feeding frenzies' take hold more times than I can count," Patalon said. "They take on a life of their own - meaning that facts, logic, and context can fall by the wayside."

The truth about the 787 is that while it has had its struggles, it's a transformative aircraft poised to replace the current fleet, which includes Boeing's 767 and Airbus's A300, A310, and A330.

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Years of delays and production issues come with the territory of trying to deliver such a game-changing aircraft. And even with all of 787's troubles, Boeing met its objectives this past quarter of delivering 30 of the Dreamliner aircraft to clients.

For the most part, the Dreamliner's worst days are behind it.

"Despite the problems, the orders for them have been pretty good," Patalon said. "They have issues, but those issues are not getting worse, they're getting them under control. The numbers are trending the right way... The sunk costs are up-front; once they start to really ramp up the orders for these things, they'll be in good shape."

The Boeing stock price has recovered slightly - up 4.1% since bottoming out earlier this month and still up 14.4% on the year - but it's also still underpriced. This is providing a great buying opportunity.

"If anything I would look at any setbacks or falloffs in the stock, barring something catastrophic or something totally unexpected, as an opportunity to accumulate the shares," Patalon said. "In the intermediate term, $200 is certainly reasonable. They're going to keep buying back stock; they're going to keep raising their dividend. They've got a huge backlog. They've got years' worth of business."

The Bottom Line: The Boeing stock price is still up big despite minor hiccups from a downgrade and one dismal earnings season. But the fact still remains - Boeing is competing against a very thin pool of players in a market that's poised to be worth more than $5 trillion in the next 20 years. And with Boeing aggressively working to reverse previous misfortunes on its Dreamliner, we could be looking at a Boeing stock price of $200 - a 36.1% gain, in no time. Buy Boeing stock now while it's still at these undeservedly low levels.

Jim Bach is an Associate Editor at Money Morning. You can follow him on Twitter @JimBach22.

Like Boeing for Its Aircraft? You should give Lockheed Martin stock a look. It's got its hands in the largest defense program in U.S. contracting history, and that's going to buoy its stock price for some years to come...