On Tuesday, Boeing Co . (NYSE:BA), an aerospace giant, maintained its Sell rating and $147.00 stock price target from CFRA, amidst discussions to acquire a significant share of its key supplier, Spirit Aerosystems. The transaction is proposed to be over $4.0 billion, funded by Boeing stock, rather than cash. This strategic move would result in Spirit Aerosystems divesting its assets related to Airbus, Boeing's main competitor.
The deal is rumored to be priced at a premium of over 10% above Spirit's closing share price on Monday. CFRA's analysis suggests that Boeing is focusing on preserving cash, as evidenced by its cash position at the end of March, which stood at $7.5 billion, after a cash burn of nearly $4.0 billion in the first quarter. The slow pace of deliveries year-to-date and the ongoing Federal Aviation Administration (FAA) constraints are contributing factors to this strategy.
CFRA's stance remains unchanged despite the potential acquisition, indicating skepticism that the purchase of the majority of Spirit Aerosystems will address Boeing's ongoing quality control issues. Moreover, the firm anticipates further delays in achieving Boeing's target production rate of 50 units per month for the 737 MAX aircraft.
This development comes at a time when the aerospace sector is navigating a complex landscape of supply chain challenges and regulatory scrutiny. Boeing's decision to pursue a stock-funded acquisition reflects a broader context of financial caution and strategic realignment within the industry.
In other recent news, Airbus SE (OTC:EADSY) has faced production delays due to engine supply constraints, causing an adjustment in their profit forecasts and a trim in their 2024 delivery target.
The shortage is partly due to CFM International's hesitation to increase engine deliveries amid concerns for its other major client, Boeing Co. CFM, a joint venture between GE Aerospace and France's Safran (EPA:SAF) SA, manufactures LEAP engines, which are used in all Boeing 737 MAX jets and over half of Airbus's A320neo family aircraft.
Meanwhile, Boeing Co. has proposed to buy Spirit AeroSystems (NYSE:SPR) Holdings Inc for $35 per share, a strategic move that could strengthen its supply chain for critical aircraft components.
This proposal comes as UBS reaffirms its Buy rating for Boeing, despite ongoing discussions about a possible acquisition of supplier Spirit Aerosystems. The potential acquisition is expected to bolster stakeholder confidence in the safety and quality improvements of Boeing's MAX aircraft.
In other developments, Boeing may potentially avoid criminal charges over its 737 MAX settlement, as the U.S. Justice Department deliberates on a deferred prosecution agreement. This follows Boeing's breach of a 2011 settlement tied to two fatal 737 MAX crashes.
On the defense front, Boeing, responsible for the sensor guiding the Patriot missile, is expanding its production capacity to meet the growing demand amidst the Ukraine conflict.
InvestingPro Insights
As Boeing Co. (NYSE:BA) explores the strategic acquisition of Spirit Aerosystems, it's essential to consider the company's financial health and market performance. According to InvestingPro, Boeing's market capitalization stands at an adjusted $107.58 billion, reflecting the scale of this aerospace leader.
Despite an 8.37% revenue growth over the last twelve months as of Q1 2024, Boeing's gross profit margin remains low at 11.48%, aligning with CFRA's concerns about the company's cost management. Moreover, the stock has seen significant volatility, with a 31.23% drop over the last six months, which may influence investor confidence.
InvestingPro Tips highlight that Boeing is not expected to be profitable this year and has not been profitable over the last twelve months. With analysts revising earnings downwards and the company trading at high EBIT and EBITDA valuation multiples, the financial outlook suggests caution. Moreover, Boeing does not pay dividends, which might affect its attractiveness to income-focused investors.
For those interested in deeper analysis, InvestingPro offers additional tips on Boeing, which can be found at https://www.investing.com/pro/BA. Readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights that could inform investment decisions.
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