Why Boeing Is Considering a Potential $10 Billion Stock Sale
Boeing is reportedly considering issuing stock to shore up its cash reserves. Here's what you need to know.
Boeing (BA) shares are trading higher Tuesday on news the embattled aerospace giant is considering issuing new stock. The move would raise at least $10 billion and would help BA replenish its cash reserves that have been depleted by an ongoing strike at its West Coast factories, according to media reports.
Boeing is working with advisers to explore its options, but any move to raise cash is not likely to happen for at least a month, according to Bloomberg, citing people familiar with the matter.
The company wants to reach an agreement to end the strike in order to gauge the total financial impact of that before moving forward. The walkout of Boeing's largest union, which is currently in its third week, is estimated to cost the company about $1.5 billion each month that it continues.
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Boeing needs to boost its coffers in order to maintain its investment-grade rating, Bloomberg said. If the blue chip stock were to lose this rating, the cost to service its current $58 billion debt load would rise.
"The Boeing Company's investment-grade credit rating has limited headroom for a strike," Fitch Ratings said on September 13. "If the current strike lasts a week or two, it is unlikely to pressure the rating. However, an extended strike could have a meaningful operational and financial impact, increasing the risk of a downgrade."
A Boeing spokesperson declined Bloomberg's request to comment on the report.
Is Boeing stock a buy, sell or hold?
Even though Boeing is one of the worst Dow Jones stocks of the year, down 40% so far, Wall Street is bullish on the aerospace company.
According to S&P Global Market Intelligence, the average analyst target price for BA stock is $209.96, representing implied upside of about 38% to current levels. Additionally, the consensus recommendation is Buy.
Financial services firm Jefferies is one of the more bullish outfits on the large-cap stock with a Buy rating and $240 price target.
"The magnitude of the strike's impact on BA will be determined by its duration, which remains to be seen," said Jefferies analyst Sheila Kahyaoglu in a September 23 note. "We estimate the strike impact at $1.3 billion of free cash flow per month, which is mostly due to lost 737 deliveries and the corresponding cash payments (around $30 million per on average) coupled with overhead absorption."
Jefferies' $240 price target represents implied upside of 55% to current levels.
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