On Thursday, Wells Fargo reiterated its Underweight rating on Boeing shares (NYSE:BA), maintaining a price target of $110.00. The firm highlighted the recent breakdown in negotiations between Boeing and its IAM 751 union, noting that the two sides ended a two-day discussion period without progress. Boeing has withdrawn its previous offer, which included a 30% pay increase over four years.
The lack of agreement raises concerns as the company approaches its earnings report on October 23. Analysts at Wells Fargo speculate there may be one more opportunity for Boeing to reach a settlement with the union before it needs to consider raising additional cash through an equity offering.
The ongoing strike, likely to continue through most of October, is expected to impact Boeing's finances significantly. Wells Fargo estimates an additional ~$2 billion cash hit for Boeing, diverging from the previously anticipated working capital reversal in the fourth quarter. Additionally, the credit rating agency S&P has placed Boeing's debt on watch for a potential downgrade due to the increased financial strain.
Wells Fargo analysts believe that Boeing, which had aimed for $10 billion in working cash, saw its cash reserves drop to approximately $8 billion at the end of the third quarter, with further decreases expected intra-quarter. Although Boeing has a $10 billion revolving credit facility as a backup, a capital raise of $10 billion is projected to maintain cash balances above $10 billion through 2025, factoring in an additional ~$5 billion for SPR issuance. However, this would leave Boeing with limited leeway for further financial challenges and a net debt of $30-40 billion, which is 2.5-3 times its projected 2026 EBITDA.
In other recent news, Boeing, the aerospace giant, is facing multiple challenges that have significant implications for its operations and financial health. The company recently withdrew its pay offer during ongoing negotiations with the International Association of Machinists and Aerospace Workers (IAM), who are currently on strike. This development could potentially prolong the strike, affecting Boeing's manufacturing operations.
Simultaneously, S&P has placed Boeing's credit rating on CreditWatch with negative implications due to the ongoing strike. This decision reflects potential risks to Boeing's financials and operational performance as the strike has brought production of its top-selling jets to a standstill.
In addition, Boeing reported a decrease in jet deliveries for September, attributed to the ongoing strike. Despite this, the company secured 65 gross orders in September, contributing to a year-to-date gross order tally of 315 as of September 30.
Furthermore, Boeing disclosed its major program deliveries for the third quarter of 2024, spanning both its commercial and defense operations. The company delivered a total of 116 airplanes in the commercial sector and handed over 34 units in the defense sector.
Lastly, Boeing is under investigation by Italian prosecutors over suspected defective parts used in the 787 Dreamliner aircraft. The parts, produced by an Italian firm for Boeing, were found to be made from lower-cost, non-compliant materials.
InvestingPro Insights
Recent InvestingPro data and tips provide additional context to Boeing's current financial situation, aligning with Wells Fargo's concerns. Boeing's market cap stands at $92.04 billion, but the company is currently unprofitable with a negative P/E ratio of -32.44 for the last twelve months as of Q2 2024. This unprofitability is further emphasized by an InvestingPro Tip indicating that Boeing is not expected to be profitable this year.
The company's financial strain is evident in its revenue growth, which shows a decline of 14.61% in Q2 2024 compared to the previous quarter. This aligns with another InvestingPro Tip suggesting that Boeing may have trouble making interest payments on its debt, a concern that echoes Wells Fargo's analysis of the company's cash position.
Boeing's stock price has fallen significantly over the last three months, with a total return of -18.7% during this period. This decline is consistent with the ongoing labor issues and financial challenges highlighted in the article. The stock is currently trading near its 52-week low, as noted by an InvestingPro Tip, further reflecting investor concerns about the company's outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Boeing, providing a deeper understanding of the company's financial health and market position.
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