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Has This Airplane Manufacturer Been Grounded?

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After struggling since the outbreak of COVID-19, shares of Boeing Co. (NYSE: BA) have finally gone on a tear…

From September 30 through year-end, Boeing’s stock was up almost 60%. That vastly outperforms the 7% rise in the S&P 500 over the same period.

Chart: Boeing Outperforms the Broader Market
That is a great run, but for anyone tempted to jump on this hot stock now, I would suggest that there may be better places to put your hard-earned cash.

My concerns over Boeing’s stock start with its balance sheet…

COVID-19 and the groundings of Boeing’s 737 Max put a huge dent in the company’s cash flow. In response to that, the company was forced to issue an enormous amount of debt.

With cash flow drying up, Boeing’s management did what it had to do to gain access to the cash that would ensure the company survived the unexpected challenges that had been thrown at it.

Now with more than $50 billion in long-term debt, Boeing has five times the amount of debt than it carried over the past decade.

Chart: Boeing's Long-Term Debt Over the Past Decade

More debt means more risk.

This is especially true given that Boeing’s revenues are not even close to rebounding to pre-COVID-19 levels.

The less revenue that a company generates, the less debt that it can comfortably carry.

While Boeing’s debt levels have surged, its revenue has headed in the other direction.

For 2022, Boeing is projected to post revenue of $63 billion. That is a far cry from the $100 billion in revenue that the company reached in 2018, when it had a fraction of the debt it now has.

Chart: Boeing's Operating revenue Over the Past Decade

Boeing’s heavily leveraged balance sheet should give investors pause, but so too should the stock’s valuation.

This stock is not cheap.

As of this writing, Boeing shares are currently back over $190.

Compare that stock price with the consensus earnings per share (EPS) estimates for Boeing over the next three years:

  • 2023: $2.78
  • 2024: $5.33
  • 2025: $10.30.

These analyst targets suggest that Boeing is going to be able to quickly increase earnings. If Boeing is able to successfully hit these EPS targets, it means the stock is currently trading at 68 times expected 2023 earnings, 35 times expected 2024 earnings and 18 times expected 2025 earnings.

None of those earnings multiples make me want to buy the stock.

Historically, prior to the troubles of the past few years, Boeing has traded around 20 times earnings. What I see here is a company that has to successfully ramp up earnings just to get back to trading at a normal valuation.

Plus, Boeing’s management has to do it while also trying to fix a wobbly balance sheet.

Today, I think Boeing’s stock is already priced for any future earnings growth that may be coming.

After a tough 2022 for stocks, there are much better bargains to be had than Boeing today.

The Value Meter ranks Boeing as being “Slightly Overvalued.”

The Value Meter

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