Source: PaxForex Premium Analytics Portal, Fundamental Insight
Crystal balls may be regarded as useful tools, but they are hard to come by for investors. However, for those considering an investment in Boeing, hard data from both management and Wall Street analysts provide a closer approximation of where Boeing's stock might stand in three years.
Boeing is one of the two largest airplane manufacturers in the world, and for long-term investors, understanding its financial outlook is crucial before making a decision. Recently, Boeing reported disappointing third-quarter earnings, revealing a 1% decline in sales to $17.8 billion, negative operating profits, and a net loss of $6.2 billion. This marks a sharp contrast to the steady growth the company had experienced in recent years as it recovered from the pandemic-induced air travel slowdown. As a result, Boeing's sales are once again shrinking, and it’s on track for its sixth consecutive year of negative profits. Over the past 12 months, Boeing has incurred a staggering $8 billion net loss, the largest since the early pandemic years.
A significant portion of Boeing's losses stem from a one-time event: a major labor strike. The strike, which was one of Boeing's longest, cost the company around $4 billion in Q3. While the strike has now ended, its effects are still felt. Boeing had to postpone the introduction of the 777X aircraft and halt production of the 767 Freighter to preserve cash flow. As a result, the company announced plans to take on additional loans and issue up to 170 million new shares to raise funds. These measures will increase Boeing’s debt payments due to high interest rates while also diluting future profits for shareholders by up to 27.5%.
On top of the strike’s effects, Boeing is also facing significant increases in labor costs. To resolve the strike, the company agreed to a 38% wage increase for machinists in Washington State, a move that will add substantial overhead costs. While the wage hike is initially limited to a specific group of workers, other Boeing employees will likely demand similar increases, potentially raising the company’s salary costs by as much as $1.3 billion, further squeezing profits. This, in turn, would reduce earnings per share (EPS) from the projected $8.12 in 2027 to around $7.60, as estimated by analysts.
The 27.5% dilution from the new shares Boeing plans to issue will further reduce the potential EPS. Should all the new shares be issued, this dilution could bring EPS down to as low as $5.96, significantly impacting shareholder returns.
As of November 12, Boeing stock is priced at approximately $144 per share. With analysts projecting earnings of $8.12 per share in 2027, this puts Boeing’s current price at more than 25 times the expected 2027 earnings, a relatively high valuation. If Boeing’s recovery doesn’t meet analysts’ expectations, the stock’s price-to-earnings (P/E) ratio could climb even further, making the stock even more expensive.
While Boeing has a strong presence in the aerospace industry and will likely survive the current challenges, its profitability outlook remains uncertain. The company is saddled with a massive $57 billion debt load and a canceled dividend, which further dampens the stock’s appeal. With Boeing’s future so uncertain and its valuation higher than the market average, it may not be a wise investment for those seeking stable returns. The risk, coupled with the current price, makes Boeing stock an expensive proposition, especially when there are more attractive investment options in the market.
As long as the price is above 143.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 145.00
- Take Profit 1: 148.00
- Take Profit 2: 152.00
Alternative scenario:
If the level of 143.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 143.00
- Take Profit 1: 139.00
- Take Profit 2: 135.00
