Al Root
Here's an idea to fix Boeing: Break it up into pieces.
"Breaking apart Boeing's divisions....could be a calculated action to release latent value and give stockholders a clearer road toward long-term success," wrote The Edge founder Jim Osman in a Sunday article for Forbes.
Boeing reports results for its commercial airplane division, its defense division, and its services division. In the third quarter, commercial airplanes reported $7.4 billion in sales. Defense and services reported $5.5 billion and $4.9 billion, respectively.
Commercial airplanes and defense aren't profitable segments currently. The services segment has continued to make money despite Boeing's recent problems, which include poor quality, lower production, and cost inflation.
Osman's firm specializes in corporate breakups and spin offs. He sees "100% upside to the current stock price" in a breakup scenario. Boeing shares closed just under $152 on Friday.
"Separating these divisions would enable Boeing to let every division focus on resources and leadership more precisely toward its goals," added Osman, who owns Boeing stock. "Recent problems have called for investor confidence to be restored, so this can offer a more open view of Boeing's operations and value and help to rebuild it."
Boeing didn't immediately respond to a request for comment about a potential breakup.
Another reason cited by Osman: It worked for GE. The old General Electric is now is now GE Aerospace, GE Vernova, and GE HealthCare Technologies. Coming into the week, the combined market value of those three was north of $330 billion. The value of the former GE slipped below $100 billion shortly after CEO Larry Culp took over in 2018.
The final piece of the GE breakup finished on Apr. 2 with the separation of GE Aerospace and GE Vernova.
To be sure, a Boeing breakup would be tricky. Most aerospace companies have a defense business because of synergies between the technology needed to make commercial and military products. They tend to have an aftermarket service business because companies make higher profits on service and parts than they do on selling original equipment.
Aerospace and defense typically go hand and hand. "Unlike GE, Boeing cannot spin off or sell a load of non-core stuff to focus on A&D," says Vertical Research Partners analyst Rob Stallard. "Similar to GE though is the corporate culture issue...ixing that takes time."
He rates Boeing shares Hold and has a $160 price target for the stock.
Targeted asset sales are a possibility. They would help raise needed cash. Bloomberg reported recently that Boeing was considering selling part of its services business. Boeing declined to comment on the report.
While asset sales might come, Boeing relieved the pressure on its balance sheet significantly with the recent sale of some $24 billion in equity and equity-linked securities.
There is, and will be, no shortage of opinions on how best to fix Boeing. Whatever happens, a successful turnaround needs to start with higher production and improved quality.
Boeing stock was up 0.8% in premarket trading at $152.82 while S&P 500 and Dow Jones Industrial Average futures were up 0.3% and 0.4%, respectively.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 11, 2024 09:02 ET (14:02 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments