Boeing shares have significant upside with possible end of strike, analysts say

Boeing’s (NYSE:BA) stock rose 5.5% as regular trading opened Monday after the planemaker said it had reached a tentative agreement with its machinists union that would end a five-week strike. While getting employees back to work is positive for Boeing (BA), the company still faces major concerns about its financial position and product quality.

One analyst said buying Boeing (BA) shares during a strike by the International Association of Machinists and Aerospace Workers has been a winning strategy in the past.

“In three prior IAM strikes (2005, 1995 and 1989), there was substantial upside if one bought Boeing (BA) stock during the strike,” Douglas Harned, analyst at financial-services firm Bernstein, said in an October 20 report. “In 2008, it was different because the strike occurred in the middle of the Global Financial Crisis and the troubled 787 launch. We have already assumed higher labor costs roughly equivalent to this proposed deal.”

The tentative agreement between Boeing (BA) and its 33,000 unionized workers includes a 35% wage increase over a four-year period. It also reinstates an incentive plan and an increase to company matching funds for the 401(k) retirement plan, the union said on Saturday.

The offer doesn’t restore a traditional defined-benefit pension, which was an important demand for many union members, but it would pay $7,000 in ratification bonuses. The aerospace and defense company also would continue to pay yearly bonuses, an incentive that was restored to Boeing’s (BA) offer after being removed early in negotiations.

Union members will vote to reject or approve the deal on Wednesday, the same day that Boeing (BA) reports third-quarter earnings. Management warned that the company will take billions of dollars in charges and report a $6 billion quarterly loss.

New CEO Takes Center Stage

The earnings report is significant as it will include the first public remarks by Kelly Ortberg, who joined as chief executive in August and was tasked with restoring public trust in a company with about 170,000 workers worldwide and a sprawling network of suppliers.

In January, a door plug used in place of an emergency exit blew out from a 737 Max flown by Alaska Airlines. Investigators determined that Boeing (BA) workers failed to replace key bolts to hold the metal panel in place. Boeing (BA) in July agreed to plead guilty to a criminal charge that it misled air-safety officials before two fatal crashes of the 737 Max in 2018 and 2019.

In addition, the company’s highly touted Starliner spacecraft became a source of embarrassment when technical issues left two NASA astronauts stuck on the International Space Station.

Ortberg has worked to raise at least $10 billion in cash and cut thousands of jobs to reduce expenses.

“On the liquidity front, we see the new credit agreement and mixed shelf helping lift liquidity concerns, providing near-term support for the stock,” Kristine Liwag, analyst at financial-services firm Morgan Stanley, said in an October 18 report.

The job cuts may limit Boeing’s (BA) ability to quickly overcome its manufacturing difficulties and to restore its supply chain.

“As much as it is positive to reach a strike resolution and clear a capital raise, the challenges ahead remain daunting,” Harned at Bernstein said. “Ortberg has a lot on his plate, particularly because all of this must be done in an organization that has already lost many experienced people.”