Boeing's Q4: A Turnaround in the Numbers, But the Core Manufacturing Hole Remains

Boeing delivered a strong headline quarter. Revenue hit $23.9 billion, a 57% year-over-year jump and the highest quarterly total since 2018. The core earnings per share figure was even more striking at $9.92. On the surface, this looks like a turnaround story in the making.

But the market's muted reaction tells a different story. Despite the numbers, shares fell 3.1% to about $234 on the news. This disconnect is the key to understanding the current setup. The EPS figure was heavily boosted by an $11.83 gain from the Digital Aviation Solutions divestiture. That one-time item masks the underlying operational reality: the core Commercial Airplanes segment still posted a negative operating margin of -5.6%, and the Defense unit lost $565 million on the KC-46 program. The strong revenue and delivery numbers are real, but they are not yet translating into clean, sustainable profits.

The stock's decline suggests investors are applying a high degree of skepticism. The market is not buying the headline numbers at face value. Instead, it is weighing the tangible progress-record backlog, increased deliveries, improved factory rework-against persistent execution risks. Concerns about supply-chain problems and a shrinking inventory cushion are raising questions about the company's ability to maintain margins as it ramps production. In other words, the strong Q4 results show Boeing is moving in the right direction, but the stock's reaction indicates the market believes the operational hole is still too wide to ignore. The numbers are improving, but the risk/reward ratio remains cautious.

The Core Manufacturing Reality: Deliveries Up, Margins Still Negative

The numbers for Boeing's Commercial Airplanes segment tell a story of progress, but also of a deep, persistent operational hole. The company delivered 600 airplanes last year, its highest annual total since 2018, and secured 1,173 net orders. This record-setting backlog of $567 billion is a powerful future promise. Yet, the financial health of the core business remains fragile, with the segment posting a negative operating margin of -5.6%.

This is where the Spirit AeroSystems acquisition becomes a known drag. The integration is already reducing the BCA margin by 1.5 percentage points, highlighting the tangible challenges of merging operations and supply chains. The market is pricing in this complexity. The strong delivery numbers are real, but they are not yet translating into clean profitability. The company is burning cash on the 777X program, with inventory spend ending at nearly $3.5 billion last year. Management expects this program to remain a cash drain until 2029, a long runway of negative cash flow that weighs on the overall financial picture.

The bottom line is one of an expectations gap. The record backlog and increased deliveries show Boeing is regaining its footing with customers. But the negative margin and the Spirit integration costs mean the operational improvements are not yet generating the financial health investors need to see. The stock's muted reaction to the Q4 results suggests the market is looking past the headline deliveries and focusing on this core manufacturing reality: the company is producing more, but it is still losing money on each airplane it builds. The turnaround is underway, but the financial health of the core business remains a work in progress.

Valuation and the Expectations Gap

The market is pricing Boeing for a smooth, profitable recovery, but the company's financial trajectory suggests a much bumpier path. The stock trades at a moderate average price target of $245.65, with some analysts raising their outlook to as high as $285. This bullish consensus view reflects the tangible progress in deliveries and backlog. Yet, the recent 3.1% drop to about $234 shows investor skepticism is far from gone. The key risk is an expectations gap: the valuation already embeds high hopes for a rapid margin turnaround, but the operational reality involves significant cash burn and execution risk.

The Defense and Services segments are showing growth, with BDS revenue up 37% year-over-year. However, their negative operating margins--6.8% for Defense and a modest 2% for Services-mean they cannot yet offset the core commercial losses. The company's record backlog of $567 billion is a powerful asset, but it also means the financial pressure to deliver is immense. Management's own guidance underscores the challenge, projecting the 777X program to remain a cash drain until 2029. This long runway of negative cash flow is a fundamental constraint that the current price target does not fully account for.

The bottom line is one of asymmetry. The upside case hinges on Boeing successfully navigating its production ramps, integrating Spirit AeroSystems, and resolving certification delays without further cost overruns. The downside is a continuation of supply-chain problems and margin pressure, which could delay the path to the promised $10 billion in normalized free cash flow. Given the stock's recent pullback despite strong quarterly results, the market appears to be applying a cautious lens. It is not rejecting the bullish thesis, but it is demanding a higher degree of certainty about execution. For now, the valuation looks priced for perfection, leaving little room for error.

Catalysts and Risks: What to Watch in 2026

The path for Boeing in 2026 hinges on a handful of specific operational and financial metrics. The market has priced in a recovery, but the stock's recent pullback shows it is watching for concrete proof. Investors should monitor three key areas to gauge whether the thesis of a stabilizing company holds.

First, the trajectory of Boeing Commercial Airplanes' (BCA) margin improvement is the single most important signal. The segment's operating margin of -5.6% for the quarter is an improvement from prior years, but it remains deeply negative. The primary catalyst here is the integration of Spirit AeroSystems. Management expects this acquisition to improve factory safety and quality, but it has already reduced the BCA margin by 1.5 percentage points. The market will be watching for signs that the promised operational leverage from the integration begins to outweigh the initial costs. Any acceleration in the reduction of factory rework-down 20% in the fourth quarter-is a positive early indicator, but sustained margin expansion is the ultimate test.

Second, the cash burn timeline for the 777X program and the status of major defense contracts are critical. The company expects the 777X to remain a cash drain until 2029, with inventory spend ending at nearly $3.5 billion last year. Investors need to see progress toward certification and a clear plan for managing this long runway of negative cash flow. On the defense side, the KC-46A tanker program continues to pressure margins, with a $565 million loss recognized last year. Any update on delays or cost overruns for the next Air Force One program would be a major red flag, while successful execution on new contracts like the MH-139A Grey Wolf helicopter deal would provide a counterpoint.

The primary risk remains a failure to deliver on the promised margin recovery. The stock's 3.1% drop despite strong quarterly results shows that investor frustration is mounting over supply-chain problems and a shrinking inventory cushion. If these execution risks materialize and delay the path to profitability, it would validate the market's cautious sentiment. The company's own guidance for 2026 includes a $1 billion unfavorable impact from Spirit integration and elevated capital expenditures, which could pressure free cash flow even as deliveries ramp. The bottom line is one of asymmetry: the upside case requires flawless execution on multiple fronts, while the downside is already priced in.