Al Root

Huge losses, a contentious labor strike, and stock sales to repair a bad balance sheet. There is a lot for Boeing investors to deal with these days.

Through it all, the stock has been remarkably stable. There is a good reason for that.

First, a review of the bad news. Boeing recently reported a third-quarter loss of $6.2 billion, one of the worst financial results in the company's history. Results were preannounced on Oct. 11.

Boeing stock was trading at about $151 a share before the preannouncement. They closed at $157 after earnings.

Then there was a stock sale that increased shares outstanding by almost 20%. Investors who owned 100% of Boeing stock before the sale suddenly owned 85% of the company.

Boeing stock was trading at about $155 a share when it announced the stock offering. Shares closed at about $153 after buys of stock on the deal paid $143 a share.

All that unfolded while some 33,000 workers in the Pacific Northwest were on strike. The action began on Sept. 13 after union employees rejected a deal that would have raised wages by about 25% over four years. They rejected another deal that would have raised wages by 35%.

Shares were trading at about $163 before the strike. They briefly traded above $163 on Oct 21.

Boeing stock seems unaffected by all that troubling news. The reason is fairly simple: It's half a trillion dollars. That's roughly the value of Boeing's backlog. Boeing can make money. It just needs to make planes.

Boeing delivered 806 planes in 2018. Wall Street believes Boeing can beat that number in 2028. Wall Street's free cash flow estimate for 2028 is about $10 billion, according to FactSet.

The estimate hasn't moved much over the past three months. No change in the long-term cash flow outlook. No change in the stock price.

Boeing shares yielded about 9% based on 2028 free cash flow at the start of 2024. They still yield about 9% -- adjusted for the capital raise and potential debt paydown.

Free cash flow estimates started the year at about $14 billion. That was before an emergency door plug blew out of a 737 MAX 9 plane on Jan. 5 while in flight. The incident led to slower production and more regulatory oversight. Boeing shares are down about 38% since then.

Airbus stock is trading at about an 8% yield based on 2028 free cash flow numbers. Boeing is at about a 10% discount to rival plane maker Airbus. Some discount is warranted, but the two companies probably won't trade that differently from one another.

So the big question for investors is what is the direction of 2028 free cash flow? Will it be better or worse than $10 billion? That's hard to say. It's a long way off, but that answer will determine how the stock does in the coming year or two.

And yes, Boeing management and workers need to make peace before that. The workers make the planes.

Write to Al Root at allen.root@dowjones.com

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October 31, 2024 03:51 ET (07:51 GMT)

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