Do Boeing’s (BA) Troubles Create Opportunity?

Boeing (BA) is having a rough go of things lately.

First, they made headlines by stranding astronauts at the International Space Station due to problems with Starliner.

Now, it’s all about the massive strike that’s affected 33,000 workers in Washington, the heart of the company’s manufacturing operation.

The current crisis centers around union pay, with management’s latest offer to increase wages by 25%, along with a pledge to build the company’s next generation of aircraft in the state rejected by 96% of voting union members.

Although shares are down 42% from their highs in 2023, financial pros began researching the ticker in earnest last week, according to our TrackStar data.

Many looked at the news and the company’s fundamentals.

With shares cheaper than they’ve been all year, is this the time to try to make a play for the airline maker?

Boeing’s Business

Boeing has dominated the skies for over a century. The aerospace giant operates lines in 65 countries, churning out jets, satellites, and more.

The 737 and 787 Dreamliner have become airborne icons, while digital solutions keep the wheels of global aviation turning smoothly.

Boeing segments its business into three high-flying divisions:

• Commercial Airplanes (31.9% of revenues) – Birthing the metal birds that crisscross our skies
• Defense, Space & Security (38.8% of revenues) – Crafting the muscle behind military might and space exploration
• Global Services (29.7% of revenues) – Keeping the world’s fleet airworthy and armed with cutting-edge tech

Despite enormous demand, Boeing’s mishaps, starting with the 737-Max, have forced the company to slow down and reengineer its manufacturing processes.

Yet, nearly half a decade later, the company hasn’t solved the problems.

Recent turbulence has rocked the Boeing behemoth. A harrowing door plug incident on a 737-9 in January sent shockwaves through the industry. 

Now, a massive labor strike threatens to ground operations. With 23% of its workforce walking out, Boeing bleeds up to $77 million daily. 

Employees rejected a 25% pay hike, demanding a 40% increase and ironclad job security. 

With $57.9 billion in debt already weighing it down, Boeing now faces a critical juncture. 

The strike’s cash flow impact could push the company towards diluting shareholder value just to keep its financial engines running. 

These challenges come on top of the new CEO, Kelly Ortberg, who is tasked with turning around the aerospace giant.

Financials

Source: Stock Analysis

Annual revenues are down 27% from their highs in 2018. Until the company can confidently produce defect-free planes, it’s unlikely to capitalize on the heavy demand.

Many airlines have already canceled orders due to Boeing’s delays. The reconstruction of the entire manufacturing process has not only slowed production but compressed margins across the board.

Gross margins are just shy of 10%, half what they were in 2018.

Operating, profit and free cash flow margins are all negative.

In the last two quarters, the company burned $3.4 and $3.9 billion in operating cash flow, respectively, down from a gain of $3.4 billion in Q4 2023. Changes in inventory and accounts receivable were the main drivers.

While the company has $12.6 billion in cash, it holds $57.9 billion in total debt, up from $57.9 billion in Q1 of this year.

Valuation

Source: Seeking Alpha

If we were to back out inventory changes, Boeing would run a price-to-cash flow ratio of 53.3x, putting it in line with Booz Allen Hamilton (BAH), but without any growth prospects.

Boeing’s price-to-sales and EV-to-sales ratios are cheaper than those of other top industrial stock searches. Then again, none of them have the same problems.

Growth

Source: Seeking Alpha

Surprisingly, Boeing’s revenue growth isn’t much worse than that of others on this list.

In fact, its 3-year CAGR is better than General Electric’s (GE) and 3M (MMM). However, that doesn’t mean much if you can’t turn a profit.

Profitability

Source: Seeking Alpha

To that end, Boeing is in last place.

All other companies listed here are profitable and generate free cash flow.

Our Opinion 5/10

It’s crazy to think that Boeing used to kick out over $15 billion in cash from operations.

How far the mighty have fallen.

Boeing won’t ever go bankrupt or at least fail. The U.S. government won’t let that happen.

But that doesn’t mean its stock can’t fall further.

We’ll see how the new CEO does trying to right the company. However, we expect time will improve the situation more than anything else.

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