On Thursday, Deutsche Bank (ETR:DBKGn) adjusted its financial outlook for Boeing (NYSE:BA), reducing the stock price target from $225.00 to $195.00, yet affirming a Buy rating for the aerospace giant's shares. The revision follows the anticipation of a larger free cash flow (FCF) burn for the third quarter, now expected to be approximately $4.0 billion compared to the previously estimated $2.4 billion.
The increased cash burn is attributed to the impact of a strike affecting September deliveries and ongoing cash pressures within Boeing's Defense segment.
The bank's analyst anticipates significant losses in two of Boeing's key divisions. A $1 billion EBIT loss is projected for Boeing Defense, Space & Security (BDS), while Boeing Commercial Airplanes (BCA) is expected to see a $1.6 billion loss.
The BCA's forecast includes the assumption that Boeing will record a $1 billion forward loss on the 777X program. This loss is expected due to potential delays in the Entry into Service (EIS) and rising costs over the program's lifespan, which are partly attributed to union negotiations and increased wages.
The analyst notes that the actual loss on the 777X could be substantially higher than the $1 billion currently factored into their estimates. However, the projection includes at least a partial accounting for the challenges faced by the program. The impact of the strike and the Defense segment's performance are key factors influencing the revised financial expectations for Boeing.
The price target adjustment reflects the analyst's assessment of these pressures on Boeing's near-term financial performance, while the Buy rating indicates a continued positive long-term outlook for the company's stock. The assessment underscores the complexities in Boeing's operations, particularly in the Defense and Commercial Airplanes segments, which are navigating through a period marked by labor disputes and delivery challenges.
In other recent news, Boeing has scheduled the release of its third-quarter financial results for later this month. The announcement will be followed by a conference call featuring President and CEO Kelly Ortberg and CFO Brian West, who will discuss the company's performance and outlook.
In parallel, Boeing is reportedly contemplating a $10 billion stock sale amid significant financial strain and ongoing labor disputes, as the company grapples with a debt load of around $60 billion and has faced operating cash flow losses exceeding $7 billion in the first half of 2024.
BofA Securities and TD Cowen have both adjusted their price targets for Boeing due to ongoing difficulties. BofA Securities has reduced its target to $170 from $200, maintaining a neutral stance, while TD Cowen has downgraded the target to $200 from $230, but maintains a buy rating. Both firms anticipate substantial efforts are required for Boeing's turnaround.
The U.S. National Transportation Safety Board (NTSB) has identified a potential safety risk in the rudder control systems of over 40 international Boeing 737 operators following an incident with a United Airlines flight. Furthermore, Boeing is dealing with a strike initiated by over 30,000 workers from the International Association of Machinists and Aerospace Workers, adding to its operational challenges. These are recent developments that investors should be aware of.
InvestingPro Insights
Recent InvestingPro data aligns with Deutsche Bank's cautious outlook on Boeing. The company's financial metrics reveal significant challenges, with a negative P/E ratio of -33.2 and an operating income of -$509 million over the last twelve months as of Q2 2024. These figures support the analyst's projections of substantial losses in Boeing's key divisions.
InvestingPro Tips highlight that Boeing "may have trouble making interest payments on debt" and "suffers from weak gross profit margins." These insights corroborate the concerns raised about the company's cash burn and operational challenges. The gross profit margin of 10.46% for the last twelve months ending Q2 2024 underscores the pressure on Boeing's profitability.
Moreover, the tip noting that Boeing is "trading near 52-week low" aligns with the stock's recent performance, as evidenced by the -17.05% price return over the past three months. This trend supports Deutsche Bank's decision to lower the price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Boeing, providing a deeper understanding of the company's financial position and market performance.
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