Boeing(NYSE: BA) got more bad news this week. Its unresolved negotiations with the International Association of Machinists and Aerospace Workers (IAM) threaten the company's cash situation and could lead it to raise funding or even resort to layoffs.
Despite the uncertainty, a UBS analyst recently maintained a buy rating on the stock and a $240 target. Shares currently trade around $155.
Boeing faces extended strike action
Boeing reached a tentative agreement on a new contract with union representatives, but 95% of the IAM's members voted to reject the contract, and 96% voted to strike. The company does not need a strike now. It ended the second quarter with $57.9 billion in consolidated debt and just $12.6 billion in cash.
Wall Street expects a cash outflow of $7.1 billion in 2024, leading to net debt of $46 billion at the end of 2024. Those figures exclude the impact of the strike, which some analysts estimate could cost Boeing as much as $1.5 billion in cash monthly.
It also comes at a crucial time when Boeing needs to ramp up airplane output following production curtailments this year.
Where next for Boeing?
The potential for near-term pressure on the stock is significant, a point the UBS analyst acknowledges. The buy case rests on the idea that once the issue is resolved, the stock will be de-risked, and airplane production will ramp up.
An extended strike and an improved contract agreement will cost cash, but management, equity investors, debt holders, and the IAM want the matter to be resolved as soon as possible.
One positive is that the company will undoubtedly have work for IAM members because it needs to deliver on a multi-year backlog. As such, management can reach an agreement with the IAM on the assumption that it won't be saddled with cost increases just as its work volume is about to decrease.
This makes Boeing an exciting stock to monitor; if the dispute proves short-lived and the cost increase is not too much of a drain on cash, it will have upside potential.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
