Gazing into the Future of Boeing Stock
Investors in Boeing (NYSE: BA) have a unique advantage – a clear roadmap of the company’s prospects, courtesy of management and Wall Street analysts. If you’re considering investing in the aerospace giant for the long haul, it’s essential to examine these projections before making a decision.
A Challenging Quarter
Boeing’s third-quarter earnings report revealed a 1% decline in sales to $17.8 billion, accompanied by negative operating profits and a staggering $6.2 billion net loss. This marks a reversal in the company’s fortunes, following three years of steady growth as air travel rebounded from the pandemic. Unfortunately, Boeing appears headed for its sixth consecutive year of negative profits, with a cumulative net loss of $8 billion over the last 12 months.
Labor Strike Fallout
The recent labor strike, which ended with a 38% wage hike for machinists, will have lasting consequences. Boeing had to postpone the introduction of the 777X and halt production of the 767 Freighter to conserve cash during the strike. The company is now planning to take on loans and issue up to 170 million new shares to raise additional capital. This move will increase debt payments and dilute future profits by as much as 27.5%.
Forecasting Profits
Wall Street analysts predict that Boeing will incur losses this year and only return to profitability in 2025. Profits are expected to grow steadily from there, reaching $8.12 per share by 2027. However, this estimate may be overly optimistic, considering the potential for further wage hikes and the dilutive effect of new shares.
A More Realistic Outlook
Assuming a 38% wage hike across Boeing’s workforce could increase salary costs by $1.3 billion, reducing per-share earnings to $7.60. Additionally, the increased share count would dilute earnings further, potentially cutting per-share earnings to $5.96. With Boeing stock currently trading at around $151 per share, this implies a forward price-to-earnings ratio of over 25.
Is Boeing Stock Worth the Risk?
Given the uncertainty surrounding Boeing’s turnaround, its canceled dividend, and the risk of debt downgrades, the current stock price may be too steep. Investors would do well to exercise caution and carefully consider the risks before investing in Boeing.
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