Is it worth buying shares in Boeing?

Some stockpickers may be eyeing up the new shares on the market in what is one of the largest equity raises in history. But the path ahead for Boeing is not a simple one as it races to shore up its balance sheet and avoid its debt being downgraded to junk status.
Boeing, the 108-year-old maker of jets, rockets and missiles, has lost more than half of its market value over the past five years. Critics argue that its problems date back decades and that for too long the culture has been focused on financial engineering rather than aerospace engineering.
A short-term focus on profits has meant it has not paid enough attention to quality developments and innovation, they say.
Take for example the number of shares in issue: the recent equity raise has reversed the steady decline in the number of Boeing shares resulting from huge buybacks between 2013 and 2019. Over that period Boeing bought back more than $40 billion worth of shares at an average price of $172 (a move which also ramped up its long-term debt from $10.7 billion in 2018 to $53.2 billion at the end of its most recent quarter). It is now issuing equity at $143 a share.
While shareholders enjoyed chunky cash returns over that period, Boeing has suffered a series of scandals, fatal crashes and embarrassing missteps: in January a door panel blew off one of its 737 Max passenger planes in mid-air; its Starliner space capsule left two astronauts stranded at the International Space Station in June; its biggest union halted airline production in September, draining an already strained balance sheet fast; and its debt is now on the brink of junk status.
The short answer is that it does not, having failed to turn an annual profit since 2018.
Boeing shares a global duopoly in commercial aircraft with the Paris-listed Airbus. Commercial aeroplanes accounted for $33.9 billion of its $78 billion in annual revenue last year. That was followed by its defence, space and security business at $24.9 billion, and its services division at $19.1 billion. Both the commercial aeroplanes and defence, space and security businesses are loss-making, the former since 2019 and the latter since 2022.
The heart of Boeing’s problems is that it has not been shipping enough planes to cover its rising fixed-cost base. Since the door panel incident, regulators have demanded that it slows down manufacturing to fix quality problems, which has reduced the amount of cash flowing into the company.
Meanwhile, in September 33,000 Boeing workers walked out of plants in Washington state after members of its biggest union overwhelmingly rejected a new contract. This stopped production of the company’s 767 and 777 planes, further hitting sales and putting strain on both suppliers and customers.
Boeing has been haemorrhaging cash and is now stretching itself to meet debt obligations. Free cash outflow at the end of the most recent quarter was $1.3 billion, which left the company with gross cash of $10.5 billion. This is not much higher than the critical $10 billion level that it needs to meet the requirements of the daily business operations.
The big three credit rating agencies S&P, Moody’s and Fitch all rate the planemaker just one grade above junk status, which is the stage that signals they think there is a very high risk that the company could default on its debt. Some bonds have interest rate step-up clauses if it gets downgraded to junk, which analysts have estimated could increase its annual interest rate costs by about $200 million to $2.9 billion.
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Boeing says it has a backlog of more than 5,400 commercial aeroplanes that have not been delivered, worth more than $500 billion. These planes have been gathering dust because of the initial grounding of the 737 Max plane, the pandemic impact on air travel and supplier execution, all of which have delayed deliveries.
But this build-up should give it some decent visibility on revenue, given that is equivalent to its last six years of sales. So far analysts expect that the company will have recovered earnings by about 2027, with earnings per share forecast at $6.98, according to estimates compiled by FactSet. This would place it at similar levels to 2016. But Boeing has previously fallen behind on delivering contracted orders on time and on budget, so even these forecasts are not without considerable risk.
Slimming down could also be an option. Last month there were reports that Boeing may consider the sale of its space business. Analysts at the Bank of America think the company could earn $1.2 billion to $1.3 billion from a sale of assets exposed to Nasa, the US national space agency. That does not include the rest of Boeing’s military space portfolio which includes satellites and classified space programmes, nor its 50 per cent joint venture with Lockheed Martin, its industry peer.
Boeing is hurtling toward a $9.2 billion pre-tax loss at the end of the financial year, according to forecasts by analysts on Wall Street. Given the more immediate challenges with the 737 Max and the 787, it is considered unlikely that Boeing will make a new programme announcement before 2025.
But Wall Street still seems to think that the group is undervalued: 53 per cent of analysts who cover the stock rank it as a buy. They argue that the company’s massive equity raise means that it should be able to benefit from better free cashflow, and eventually a healthier supply chain.
Boeing is about three years into what is anticipated to be a four to five-year order cycle, so demand for its narrowbody planes should still be relatively strong. But there are still lots of risks: production schedules must stay on track and it still has to stay competitive with Airbus while reviving its balance sheet. With so much uncertainty still hanging over the stock, it looks best avoided for now.
Advice AvoidWhy Long and risky path ahead to recovery
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