Boeing's Year of Crisis Leaves Investors Wary of Beaten-Up Stock

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Boeing's Year of Crisis Leaves Investors Wary of Beaten-Up Stock

stock :: 2024-12-16 :: source - bloomberg

By Esha Dey

(Bloomberg) -- What was supposed to be a comeback year for Boeing Co. has turned into its worst stock-market plunge since 2008, and if Wall Street is right, the plane-maker’s shares may have only a modest recovery in store in 2025.

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The stock is down 35% this year, placing it among the 20 biggest decliners in the S&P 500 Index. The shares have stabilized over the past month, but investors remain wary. They point to the string of crises in 2024 that shook their confidence in Boeing’s prospects and the risk that it will suffer should trade friction build anew under President-elect Donald Trump.

“Just staying out of the news would be a win for Boeing at this point,” said Eric Clark, portfolio manager of the Rational Dynamic Brands Fund.

Coming into 2024, the company seemed to be emerging from the aftermath of two fatal crashes of its jets in 2018 and 2019 and the collapse of global travel during the pandemic. Boeing had taken a big step toward thawing its strained relations with China, jet orders were surging and shares were the highest in nearly two years. Wall Street was overwhelmingly optimistic, without a single sell recommendation on the stock.

Things started to unravel in January, when a door plug on a Boeing aircraft blew off mid-air during an Alaska Air flight. Then came a public outcry and intense scrutiny of Boeing’s corporate practices and its culture, a management overhaul leading to the exit of the chief executive officer, serious allegations from whistle-blowers, a debilitating labor strike and a massive cash burn that the company says will continue in 2025.

The chain of events pummeled Wall Street’s profit expectations. Twelve months ago analysts on average expected Boeing to earn $4.18 a share this year, after four straight annual losses, data compiled by Bloomberg show. They now anticipate a loss of $15.89 per share, the worst since 2020. At the same time, estimates for 2025, 2026 and 2027 have collapsed by roughly 50% or more from year-ago levels.

It all explains why analysts have dim expectations that the recent recovery in the jet-maker’s shares will extend much further. Their average 12-month price target suggests potential for a roughly 7% gain from Friday’s close of $169.65.

Boeing, which is based in Arlington, Virginia, declined to comment.

Turbulence Ahead

A major worry entering 2025 is that the company’s sprawling global supply chain leaves it exposed should Trump follow through on his tariff proposals. Boeing, along with American manufacturing behemoths like Caterpillar Inc. and Deere & Co., is widely seen as being on the front lines of any trade war that might ensue.

Boeing’s biggest concern, however, is a production slowdown — first in an effort to improve quality after the Alaska Air incident, and then because of a strike that ended in November. The combination depresses cash flow and erodes its position versus rival Airbus SE, which commanded almost 60% of the global backlog of commercial aircraft last year, according to Bloomberg Intelligence.

On top of that, it’s been decades since Boeing worked on an all-new aircraft, and CEO Kelly Ortberg has said that this is one of the key goals. Concrete signs that the company can produce quality aircraft at a steady pace is crucial for investors and analysts in 2025. There’s plenty of demand for planes globally — fueled in part by surging air travel in emerging markets.

“The top priority is to execute on this demand by building flawless aircraft at a gradually increasing pace,” JPMorgan Chase & Co. analyst Seth Seifman wrote in a report last month. “This is not easy and we won’t see immediate results, but we do see potential for Boeing to make progress in 2025 on the road to delivering long-term value.”

Last week showed the potential for the shares. News that Boeing has resumed assembly of its bestselling aircraft — the 737 Max — helped spur its best weekly advance since mid-2023.

The company’s solid position in the market, as one of essentially two manufacturers, explains why it still commands a market capitalization over $125 billion. Boeing has more than $500 billion worth of aircraft in its backlog. It also raised $21.1 billion in a share sale this year, which should help stabilize its credit rating.

“Boeing’s position in the duopoly with Airbus ensures the company’s viability but doesn’t guarantee financial strength,” said Mark Malek, chief investment officer at Siebert.

Trade disruptions could inflate costs as nearly half of the company’s suppliers are outside the US, a threat to both revenue and margins, he said.