In three years, where might Boeing find itself?
Crystal balls may be hard to come by for investors, but those investing in Boeing (BA 4.50%) stock have something akin – concrete data provided by management and analysts, predicting where the company's stock will stand in three years.
If you're planning on investing in one of the major airplane manufacturers worldwide and holding the stock for the long term rather than just trading in and out, consider these numbers before making your move.
Boeing's Current Status
Boeing reported its third-quarter earnings late last month, showing a 1% decline in sales to $17.8 billion, a negative operating profit, and a $6.2 billion net loss on the bottom line. This signifies a resurgence of Boeing's sales decline after three consecutive years of steady growth following the pandemic's impact on air travel. Worse still, Boeing appears to be heading towards its sixth consecutive year of negative profits, with a net loss of $8 billion during the last 12 months – its worst ever since the pandemic's early days.
While a considerable portion of Boeing's loss can be attributed to the company's lengthy fourth labor strike, contributing approximately $4 billion to the Q3 losses, Boeing had to temporarily halt the introduction of one of its planes (777X) and cease production of another (767 Freighter) to preserve cash during the strike. Boeing also revealed plans to take on loans and issue up to 170 million new shares to boost its cash reserves.
Boeing's Plans until 2027
The Boeing labor strike has come to an end, but not without its consequences. Apart from any losses incurred during the strike, Boeing had to delay the rollout of its 777X and prematurely end the production of the 767 Freighter to conserve funds during the strike. Boeing announced plans to borrow money and issue up to 170 million new shares to raise additional funds.
At high-interest rates, this move will significantly increase Boeing's debt payments while diluting shareholders' profits in future years by up to 27.5%. Furthermore, Boeing had to agree to increase the wages of its machinists by 38% over the next four years to persuade them to end the strike, which will further escalate operating costs and drain profits.
Wall Street's Forecast for Boeing's Earnings in 2027
With the strike resolved and a substantial amount of cash generated through borrowing and share sales, Boeing's survival is guaranteed. However, the company is likely to experience lower profits in the future.
Analysts from S&P Global Market Intelligence expect Boeing to record a loss this year, bouncing back to profitability only in 2025. Profits are expected to gradually improve from thereon, reaching $8.12 per share by 2027.
However, this estimate may be inflated. For instance, Boeing's increased wages – initially affecting only machinists in Washington State – may eventually spread to other employees as they seek to maintain their wage parity with the machinists. This could result in a potential $1.3 billion increase in wages, further eroding profits and reducing the company's earnings per share to $7.60.
Additionally, the rise in new shares issued by Boeing will further dilute shareholders' profits. With a 27.5% dilution, Boeing's earnings per share could drop to as low as $5.96.
Should You Buy Boeing Stock?
As of close on November 7, Boeing stock trading at approximately $151 per share, representing more than 25 times estimated 2027 earnings. Any misstep in Boeing's recovery plan could lead to even higher multiples, making the stock even more expensive.
With Boeing's future uncertain, its dividend discontinued, and its $57 billion debt load at risk of downgrading to junk, such a high premium seems excessive to own Boeing stock.
Investors interested in the aviation sector might want to reconsider their investing strategies when it comes to Boeing, as the company's current financial situation suggests a challenging road to profitability. Analytical reports by S&P Global Market Intelligence estimate that Boeing's earnings per share could potentially drop to as low as $5.96 due to factors such as increased wages and diluted shareholder profits. With the stock currently trading at around $151 per share, representing more than 25 times estimated 2027 earnings, the high premium might be seen as excessive for some investors, making it crucial to weigh the risks against potential returns before investing in Boeing's stock.
