Boeing Co (NYSE: BA) has revealed plans to raise as much as $25 billion to shore up its balance sheet amidst the ongoing machinist strike and production issues.
However, Matthew Akers, a Wells Fargo analyst, is not convinced that a capital raise will prove to be sufficient for the company’s share price to recover.
Akers rates Boeing stock at “sell” and warns of a continued decline in it to $109.
His price target indicates a potential 27% downside from here.
Boeing has a lot of debt on its balance sheet
Boeing has signed a $10 billion credit agreement with a consortium of banks as well.
“I think it’s a drop in the bucket for the whole balance sheet. There’s a lot of work left to pay down the remaining debt that’s due,” Matthew Akers told CNBC in an interview on Tuesday.
Akers doesn’t read the news as positive also because the aerospace and defense giant already has well over $50 billion in net debt and the capital raise, at least some of it, is expected to be in the form of more debt.
Additionally, the New York-listed firm will see higher costs over the next few years regardless of the resolution it ultimately ends up signing with the union, he added.
The machinist strike is costing BA an estimated $1.0 billion per month.
Note that Boeing stock no longer pays a dividend to attract income investors ahead of a potential economic slowdown either.
Boeing still runs the risk of cost overruns
Boeing will eventually fix its production issues and the stock price will then begin to rally – that’s been the narrative so far.
But the debate has broadened out and it’s the balance sheet that will determine the fate of BA from here on out, as per the Wells Fargo analyst.
The multinational will have to invest in a new airplane in the second half of this decade which historically results in cost overruns and other issues, he added on “The Exchange” today.
Nonetheless, Richard Safran – a Seaport Global Securities analyst remains bullish on Boeing stock and sees a 40% upside in it to $209.
That’s because the Virginia-based behemoth is committed to avoiding a potential downgrade in its credit rating to “junk”.
On top of the capital raise, BA recently announced plans to lower its global headcount by 10% to cut costs.
The move will see it lay off about 17,000 of its employees.
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