Boeing Just Sold 3 Businesses in 1 Week. Here’s What It Says About the Aerospace Giant’s Turnaround.

Boeing (BA -1.75%) recently announced a spate of major developments. However, one particular development taking shape this month likely caught the attention of a wide swath of investors.

On Aug. 10, Boeing announced plans to sell three of its aerospace and electric vertical takeoff and landing (eVTOL) businesses to Archer Aviation (ACHR -3.65%), one of the most followed eVTOL stocks.

Yet while this transaction has significant implications, the question is whether it meaningfully changes the story for Boeing shares.

Image source: Getty Images.

Archer deal turns divestitures into an opportunity

Numerous strategic and/or private buyers would likely have paid cash for eVTOL builder Wisk, drone maker Insitu, and air-traffic software company SkyGrid. However, by merging them into Archer, the company is turning what would be a series of routine divestitures into an opportunity.

Per the terms of its deal with Archer Aviation, in exchange for the three businesses, plus an agreement to make a $55 million equity investment in Archer, Boeing will receive a combination of newly issued shares and warrants in the eVTOL company.

Assuming the deal obtains regulatory approval and closes later this year, Boeing will own nearly 20% of Archer. This leaves the aerospace giant well-positioned to benefit from the start-up’s further commercialization. That’s not all. At the same time, Boeing retains the right to use Wisk’s autonomous flight technology for its commercial and defense aircraft products.

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What this means for Boeing stock

While the Archer deal could eventually produce billions of dollars in value for Boeing, for a megacap company with a $170 billion market cap, that’s arguably a drop in the bucket. Still, by handing these businesses off to one of the emerging leaders in the eVTOL space, Boeing’s management removes one more potential distraction from its plate.

The company remains hard at work getting its commercial aircraft business back on track. It recently made major progress in this area, as its 737 MAX 7 just received Federal Aviation Administration (FAA) approval. Divesting this business also provides management with more bandwidth to further grow and improve the company’s defense aircraft business. Yet while all of this bodes well for Boeing’s return to steady profitability and prior levels of cash flow, there’s just one problem.

The upside from a turnaround appears well established in its stock price. Boeing trades for around 77 times trailing-12-month (TTM) earnings. That’s a massive premium even to other high-flying aerospace stocks like GE Aerospace, which trades for around 40 times earnings. Management may anticipate a path toward $10 billion in annual free cash flow, but that’s still below Boeing’s $14 billion in free cash flow during 2018, prior to the company’s fiscal performance tanking due to the 737 MAX grounding and COVID-era drop in aerospace demand.

While this transaction could incrementally improve Boeing’s turnaround and provide a potential multibillion-dollar windfall, it’s going to take a big pullback or a clearer picture of future profitability before this stock is in the long-term “buy zone” once again.