Rolls-Royce has been a standout performer in the FTSE 100 this year, with the share price surging over 200% in 2024 so far. However, while Rolls-Royce basks in the spotlight, I think it’s possible another aerospace leader, Boeing (NYSE: BA), might offer an even more compelling investment case, despite some recent challenges. Let’s take a closer look.

A turbulent few years

Boeing, the world’s largest aerospace company, has faced significant challenges in recent years. From the grounding of it’s 737 MAX planes over safety fears, to pandemic-related disruptions, the company’s share price has declined by over 60% in the past five years. However, investing is often about going against the trend, and this substantial drop may present an attractive opportunity.

A discounted cash flow (DCF) calculation suggests that the shares are trading at approximately 40.1% below estimates of fair value. Of course, there’s no reason to suggests the current negative trend in the shares will change any time soon. But it gets me interested in the long-term potential of an investment.

Valuation estimates should of course be approached with some caution. I’d suggest such a large discrepancy between the current price and estimated value warrants caution. There’s plenty of potential, but plenty of risk for this to worsen if results fail to meet expectations.

Eyes on the future

Despite the firm’s recent disappointments, I think the future outlook appears more promising. Analysts forecast annual earnings growth of 67% for the next five years, surpassing many peers in the aerospace and defence sector. This includes Rolls-Royce, which forecasts a decline in annual earnings over the coming years.

Of course, it’s crucial to acknowledge the risks. The company carries a substantial debt burden, with it’s $57.7bn debt not well covered by operating cash flow. With a debt-to-equity ratio of -320.7%, this could pose challenges if the company faces further unexpected setbacks.

Additionally, shareholders have experienced dilution over the past year, which is generally viewed negatively by existing investors. Although the number of shares only increased by 2.1%, management will need to demonstrate improved financial discipline to regain investor confidence.

More appealing than Rolls-Royce?

While the Rolls-Royce’s share price has been impressive of late, I think it’s worth considering whether an investment in the stock still offers good value after such a significant run-up. Boeing, despite its challenges, could easily offer a more attractive risk-reward profile.

Boeing’s price-to-sales (P/S) ratio stands at 1.3 times, compared to Rolls-Royce’s 1.4 times. This suggests that investors are paying slightly less for sales compared to Rolls-Royce. Moreover, I’d argue that Boeing’s larger scale and more diversified business model provide additional layers of resilience and growth potential.

To me, both companies represent intriguing opportunities in the aerospace sector. Rolls-Royce has demonstrated an impressive turnaround, but much of this positive news may already be reflected in the shares. Boeing, while still facing challenges, could offer better value at current levels, with significant potential if the company can execute on its growth plans and operational improvements.

Many will continue to focus on Rolls-Royce, but I’ll be watching Boeing’s share price, and buying at the next chance I get.