To The Moon

$Boeing(BA)$ stock has faced significant volatility in recent years, driven by multiple factors, including issues with aircraft safety, production delays, regulatory challenges, and macroeconomic conditions like supply chain disruptions.

Risk

The Boeing machinists' strike began on September 13, 2024, when over 33,000 workers walked off the job at the company's Everett and Renton plants in Seattle. This stoppage immediately halted production of the Boeing 737, 777, and 767 aircraft, resulting in more than $6 billion in losses for Boeing during the third quarter of 2024. Analysts estimate that the strike caused a loss of approximately $5.5 billion in earnings.

Earning Overview

Boeing's Q3 2024 earnings report highlighted a challenging period, with the company facing substantial losses, primarily attributed to the machinists' strike that began in September. The strike, which impacted key production plants in Everett and Renton, halted the manufacturing of the Boeing 737, 777, and 767 models, contributing to a loss exceeding $6 billion in the third quarter. The company also reported a significant miss on its earnings per share (EPS), posting a loss of $10.44, which was worse than the consensus estimate of -$10.34. it still marked a 1.5% decline from the previous year.

Fundamental Analysis

oeing's Q3 2024 results showed significant financial losses, driven by ongoing production issues, labor strikes, and higher-than-expected costs. The company reported a net loss of over $6 billion in the third quarter, exacerbated by a machinists' strike that halted production of key aircraft models, including the 737, 777, and 767​.

The strike alone is estimated to have caused around $5.5 billion in lost earnings​.

Boeing also raised $20 billion through a stock offering to improve liquidity amid these challenges​. These financial setbacks are compounded by geopolitical risks, including the potential reintroduction of tariffs under President Trump's 2024 re-election campaign, which could further increase production costs and reduce Boeing's competitiveness​.

Technical Analysis

From a technical analysis perspective, Boeing's stock has been heavily impacted by operational struggles. Despite a slight revenue growth in the third quarter, operational margins have worsened due to rising costs, exacerbated by the ongoing labor strike, and production issues with the 737 MAX. The company has been forced to ramp up production at a slower pace than expected, which could continue to weigh on stock performance. Its operating margin, which plunged to -33.6% in Q3, signals potential ongoing difficulties.

Free Cash Flow

In Q3 2024, Boeing reported a free cash flow usage of $2 billion, a decline that reflects challenges in commercial deliveries, particularly in widebody aircraft, and unfavorable timing related to working capital. The company also experienced significant disruptions, such as work stoppages, that impacted its ability to meet delivery targets and adjust production schedules.

Risks and Challenges

Debt Levels: Boeing has a significant amount of debt, a legacy of funding its operations, R&D, and production efforts, including the costly development of new aircraft like the 787 Dreamliner and the 737 MAX. At various points, Boeing has taken on more debt to weather the financial strain caused by the 737 MAX crisis and the pandemic.

Safety and Regulatory Concerns: The grounding of the 737 MAX after two deadly crashes seriously impacted Boeing's reputation and finances. While the 737 MAX is back in service, lingering concerns about regulatory oversight and aircraft safety can affect investor confidence.

Competition: Boeing faces stiff competition from companies like Airbus, which may take market share and push prices down, impacting Boeing's earnings.

Macroeconomic Factors: Economic downturns, fluctuating oil prices, and geopolitical instability could lead to reduced demand for commercial aircraft and defense contracts, which are critical drivers for Boeing's business.

Debt Levels: Boeing has high levels of debt, which can be risky, especially in times of financial stress or rising interest rates.

Valuation

Price-to-Earnings (P/E) Ratio: Boeing’s P/E ratio can be misleading due to the periods of losses it faced during the 737 MAX crisis and COVID-19. If the company continues to deliver on its recovery and growth strategy, its P/E ratio should normalize over time.

Price-to-Sales (P/S) Ratio: Boeing's P/S ratio has fluctuated with its revenue, but the company’s sales have been improving as aircraft deliveries rise. A higher P/S ratio may indicate that the stock is expensive relative to its sales, especially during recovery phases.

Boeing's Q3 2024 results show mixed performance, with some areas of growth offset by challenges. The company reported revenue of $17.8 billion, a slight 1% increase from the previous year, but faced significant setbacks in profitability. Boeing recorded a net loss of $6.17 billion, or $9.97 per share, worsening from a loss of $1.63 billion in the same period last year. A core loss per share of $10.44 was also reported​.

One of the key contributors to Boeing’s struggles has been production disruptions, especially related to the 737 MAX, compounded by a workers' strike affecting the company's operations. These factors led to a steep drop in operating margin, falling to -33.6%, a sharp deterioration from the previous year's -6.0%.

Despite these challenges, Boeing's backlog remains strong at $511 billion, indicating a solid future order pipeline. However, it is anticipated that Boeing's losses may persist until the labor issues are resolved and production ramps up.

In terms of valuation, the company’s current stock performance has been significantly impacted by these operational and financial difficulties, with its stock down 42% in 2024, far underperforming the broader market.

Conclusion

Boeing's stock might appeal to investors with a long-term horizon who believe in the recovery of the aviation industry and the strength of Boeing's defense and space segments. However, it may not be suitable for risk-averse investors given the volatility and ongoing challenges.