Today’s stories focus on Boeing’s shares, and the mounting problems that are likely to see its stock price fall. Wells Fargo downgraded Boeing stock this morning to underweight, and slashed their stock price forecast for the year. Another story this morning confirms the bearish trend for Boeing stock in a comparison of comparable companies, all while the rumor mill indicates an increasing likelihood for a strike by 32,000 Boeing employees, which could virtually stop aircraft deliveries.
If Boeing is truly going to change its strategy, it needs to move away from stock price as a key metric in its equation, as the numbers simply don’t add up. Maintaining the current price given the company’s cash flow drain and need to shore up its balance sheet, which is teetering just above junk status with the rating agencies, seems an impossibility at this point. It will be interesting to see if any Wall Street analysts follow Wells Fargo in downgrading Boeing shares.
While a credit rating downgrade is something Boeing doesn’t need, it appears that it could be inevitable, particularly if a strike becomes protracted and deliveries of new aircraft stopped. Labor at Boeing, for the first time in many years, has significant leverage in its negotiations that could result in major gains for employees. But a long strike could also be a backbreaker for Boeing in terms of moving its financial targets back from 2027 to 2028 or 2029.
Boeing needs a cultural change, moving away from shareholder value to metrics of quality and performance. That is difficult to do when virtually every major program has problems, all of which relate back to unrealistic expectations and a culture that cares about the bottom line more than quality or building the world’s finest aircraft.
Our prediction: The IAM will strike Boeing, and the company will have a deeper hole to dig itself out of, delaying a financial recovery to projected cash flow targets to 2028 at the earliest. Funding Boeing’s turnaround will require new equity, which will dilute shares and lower returns to shareholders. That is the opposite of what prior Boeing management had established as goals for the company.
Boeing needs a short-term success story, but the Starliner, ULA joint venture, C-46A tanker, 737 MAX, and 787 all have quality and profitability issues, and the 777X is six years behind schedule. We simply don’t see a short-term success until the company can rebuild its engineering and manufacturing skills, which is at least a medium to long-term task vital to the company’s turnaround. While incremental gains can be achieved, the company’s decisions to pursue stock buybacks rather than focus on new programs has placed the company at a competitive disadvantage that will likely take three decades to overcome.
In other news, Boeing is strengthening its presence in Qatar, and has appointed a new Managing Director. Boeing now has 360 employees in Qatar and is looking for growth for Boeing as the country focuses on tourism.
Links to today’s key news stories follow:
Boeing stock dips on Wells Fargo downgrade, price cut – Yahoo
The Boeing Company Stock: Is BA underperforming the Industrials sector? – barchart
Boeing shares tumble as Wells Fargo cuts to rare bearish view – Seattle Times
Boeing’s next big problem could be a strike by 32,000 workers – Yahoo
Boeing strengthens Qatar presence with new managing director – The Peninsula
