It is said that crystal balls are useful items, but very difficult for investors to obtain. For better or for worse, investors are in Boeing(NYSE:BA) Stocks have something very close to a crystal ball: hard numbers, put together by management and by Wall Street analysts, that tell us where Boeing’s stock will be in three years.
Are you planning to invest in one of the two largest aircraft manufacturers in the world, and do you plan to own it for the long term, rather than simply trading in and out of the stock? If so, it’s probably a good idea to at least consider these numbers before making a decision.
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Boeing announced its third-quarter results at the end of last month. The news wasn’t great: a 1% decline in revenue to $17.8 billion, negative operating profit and a net loss of $6.2 billion.
This confirms that after three consecutive years of steady growth, as Boeing emerged from the pandemic slowdown in air travel, Boeing sales are contracting again. Worse still, the aerospace giant appears to be heading for its sixth straight year of negative profits. Over the past twelve months, Boeing’s net loss is $8 billion – its largest loss since the first year of the pandemic.
Granted, much of Boeing’s loss is due to a one-time event, the fourth-longest labor strike ever, which contributed about $4 billion to third-quarter losses.
This strike is of course now over, but not without consequences for Boeing. In addition to the possible loss of sales during the labor stoppage, Boeing had to delay the introduction of one aircraft (the 777X) and production of another aircraft (the 767 Freighter) to save money during the strike. The company announced plans to raise loans and issue up to 170 million new shares to raise additional cash.
At today’s high interest rates, this will increase Boeing’s debt payments, while the new shares will dilute the profits shareholders will earn in the coming years – by as much as 27.5%.
In addition, Boeing had to agree to increase the salaries of its machinists by 38% over the next four years to convince them to end the strike, which would further increase overhead costs and further reduce profits.
The good news is that with the strike behind it, and a pile of cash generated through loans and stock sales, Boeing will survive. The bad news is that the company will likely be a lot less profitable in the future.
How a lot of less profitable? Consider: According to the latest estimates from S&P Global Market Intelligence, Wall Street analysts predict that Boeing will lose money this year and not return to profitability until 2025. Earnings are expected to grow steadily from then on, reaching $8.12 per share in three years. from now on, in 2027.
Take Boeing’s 38% wage increase, for example. Initially, this pay increase will only go to machinists in Washington state, members of the International Association of Machinists who have called the strike. However, I would expect that other Boeing employees will demand raises of similar magnitude over time, to keep their own wages in line with what the machinists earn. By my calculations, a 38% increase in Boeing’s workforce wages could increase the company’s payroll costs by as much as $1.3 billion, hurting profits and reducing the company’s earnings per share to just 7. $60.
Then, the increased number of shares of new stock that Boeing issues will further dilute these gains. Should Boeing issue all the shares it is considering, the resulting 27.5% dilution of earnings will reduce earnings per share to just $5.96.
At the close of trading on Thursday, November 7, Boeing stock is trading at about $151 per share, meaning the stock is trading at more than 25 times my estimate of 2027 earnings. If something goes wrong with Boeing’s turnaround, causing profits to fall short of analysts’ (usually overly optimistic) forecasts for 2027, the future price-earnings ratio could be even higher.
Call me a pessimist if you like, but with Boeing’s future uncertain, its dividend canceled and its $57 billion debt burden at risk of being relegated to junk, this seems like too expensive a price to pay for owning Boeing shares.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Where will Boeing be in three years? was originally published by The Motley Fool
