What should be a year of recovery for the Boeing turned into its biggest stock market drop since 2008, and if Wall Street is right, the plane maker’s shares may only make a modest recovery in 2025.
The manufacturer’s shares have dropped 35% this year, placing it among the 20 biggest decliners in the S&P 500 index. The shares have stabilized in the last month, but investors remain cautious. They point to the series of crises in 2024 that have shaken their confidence in Boeing’s prospects and the risk of suffering consequences if trade tensions rise under Donald Trump’s presidency.
“Simply not making headlines would be a victory for Boeing at this point,” said Eric Clark, portfolio manager at the Rational Dynamic Brands Fund.
By early 2024, the company appeared to be overcoming the impact of two fatal crashes of its jets in 2018 and 2019 and the collapse of global tourism during the pandemic. Boeing had taken a big step toward thawing its strained relations with China, plane orders were up and shares were at their highest levels in nearly two years. Wall Street was cautiously optimistic, without a single sell recommendation for the stock.
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The problems began in January, when a door cover on a Boeing aircraft came loose mid-air during an Alaska Air flight. Then came public outcry and intense scrutiny of the company’s corporate practices and culture, an administrative shake-up that resulted in the departure of the CEO, serious whistleblower allegations, a debilitating labor strike, and a huge cash burn that the company predicts will continue into 2025.
The sequence of events drastically hurt Wall Street’s profit expectations. Twelve months ago, analysts expected Boeing to post a profit of $4.18 per share this year, after four consecutive years of losses. They now forecast a loss of $15.89 per share, the worst since 2020. At the same time, estimates for 2025, 2026 and 2027 have collapsed by about 50% or more from year-ago levels.
All of this explains why analysts have low expectations that the recent rally in the jet maker’s shares will extend much further. His 12-month average price target suggests upside potential of approximately 7% from Friday’s close of $169.65.
The main concern heading into 2025 is that the company’s extensive global supply chain leaves it exposed if Trump follows through on his tariff proposals. Boeing, along with American manufacturing giants like Caterpillar Inc. and Deere & Co., is widely seen as being on the front lines of any trade wars that may arise.
Boeing’s biggest concern, however, is the slowdown in production — first in an effort to improve quality after the Alaska Air incident and then due to a strike that ended in November. The combination depresses cash flow and erodes its position relative to rival Airbus SE, which held nearly 60% of the global commercial plane portfolio last year, according to Bloomberg Intelligence.
Additionally, it has been decades since Boeing has worked on a completely new aircraft, and CEO Kelly Ortberg has stated that this is one of the main goals. Concrete signs that the company can produce quality aircraft at a steady pace are crucial for investors and analysts in 2025. There is a lot of demand for planes globally — driven in part by the growth of air tourism in emerging markets.
The last week has shown the potential of shares. News that Boeing has resumed assembly of its best-selling aircraft — the 737 Max — helped drive its best weekly advance since mid-2023.
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The company’s solid position in the market, as one of essentially two manufacturers, explains why it still maintains a market capitalization of over $125 billion. Boeing has more than $500 billion worth of planes in its backlog. It also raised $21.1 billion in a share sale this year, which should help stabilize its credit rating.
“Boeing’s position in the duopoly with Airbus ensures the company’s viability, but does not guarantee its financial strength,” said Mark Malek, chief investment officer at Siebert.
Trade disruptions could inflate costs as nearly half of the company’s suppliers are outside the U.S., a threat to both revenue and margins, he added.
© 2024 Bloomberg L.P.
