Boeing (BA) stock suffered in 2024 as high-profile safety incidents related to civil aviation operations exacerbated previous concerns about build quality and safety mechanisms. However, the company’s misery has now extended to thousands of striking workers demanding higher wages and benefits. Meanwhile, the company’s debt situation is getting worse by the day. Despite the positive earnings outlook for 2025, I’m pessimistic on Boeing.
Boeing workers’ salary claims
As most investors and the general public know, it’s been tough for Boeing in recent years. Amid continuing quality concerns and delivery delays, the ongoing Boeing labor dispute has reached a critical juncture. The company recently presented its “best and final offer” to the striking workers, but it appears that this effort was in vain. It seems like every week there’s a new reason to be pessimistic about Boeing.
The latest proposal included a 30% salary increase over four years, compared to the previous offer of 25%. It also promised to double the certification reward to $6,000. However, the International Association of Machinists and Aerospace Workers (IAM) rejected Boeing’s ultimatum, refusing to hold a vote by the company’s September 27 deadline. Representatives of the striking workers had earlier claimed that the proposal was made without negotiating with the union.
The strike, in which 33,000 workers participated, halted the production of several aircraft models and costs Boeing a significant sum every day. According to the union, major issues remain unresolved, including the restoration of the traditional pension plan that was abolished a decade ago.
A review of quality issues at Boeing
As the standoff continues, Etihad and Boeing face increasing pressure. Boeing has implemented cost-cutting measures including furloughing non-union employees, while striking workers risk losing company-provided health insurance by the end of the month.
However, it seems that these strikes and layoffs are likely to only exacerbate production and quality problems. In recent years, the company has faced criticism for prioritizing production speed over quality, with workers reporting inadequate training and pressure to cut costs. A six-week FAA audit revealed serious production problems, including improper documentation, inadequate quality inspections, and the use of unauthorized tools.
These issues have led to incidents such as a door seal breaking off on an Alaska Airlines (ALK) flight in January 2024. Recent incidents have also included a LATAM Airlines 787 mid-air landing in March 2024, and an engine loss incident on a Southwest Airlines 737. -800 Flights In April 2024. All of this exacerbates the repercussions of the fatal accidents of 2018 and 2019. With quality concerns growing, mitigation efforts have already delayed delivery.
Is debt a concern for Boeing?
The problems continue to mount for Boeing, and its growing debt pile is one of them. As of Q2 2024, the company’s long-term debt jumped back to more than $50 billion recently, after several quarters in the $47 billion-$48 billion range. This increase is due to the issuance of new debt. Some investors expressed concerns about the company’s financial stability.
Furthermore, Boeing’s bonds are trading near the junk level and are at risk of losing their investment-grade status, which could cause the company’s yield spreads to rise. The company’s cash flow was also negatively impacted, with operating cash flow falling to -$3.9 billion for the second quarter of 2024.
Should investors trust the forecast?
While I’m pessimistic because of all these headwinds, many analysts expect a quick return to profitability. Current consensus estimates indicate that Boeing will achieve earnings of $3.44 per share in 2025. This earnings level suggests that Boeing is trading at a forward P/E ratio of 44.2 times. From there, analysts expect earnings to rise to $13.09 in 2027; The two-year forward P/E is just 7.26 times.
Personally, I’m skeptical about the merits of this forecast given the damage Boeing has suffered, as well as its slower order book than peer Airbus (EADSF). Airbus itself is suffering from production delays, but its problems seem to pale in comparison to the struggle its American counterpart is going through.
Is Boeing Stock a Buy According to Analysts?
On TipRanks, BA comes in as a Moderate Buy based on 15 Buy, four Hold and two Sell ratings assigned by Wall Street analysts in the past three months. The average price target for Boeing stock is $210.79, which implies a potential upside of approximately 35%. The majority of analysts expect BA stock to rebound above $200 per share within the next year.
The bottom line on Boeing stock
I realize that Boeing is trading at well below its average stock price target, but BA stock is not an investment for those with an upset stomach. Quality concerns, pay issues, and a worsening debt situation all contribute to my doubts about whether the company can regain its footing any time soon. To me, there is simply too much risk and potential downside from investing in BA shares. I don’t want to be a landlord here, despite the high barriers to entry in the industries you work in.
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