Risks and Rewards of Boeing
Boeing's Path to Recovery
The stock undoubtedly holds significant upside potential. As previously explored, its recovery isn't solely reliant on ramping up 737 MAX production or resolving issues within its defense business's fixed-price development programs. These aspects are crucial elements of the recovery journey and are well within Boeing's grasp.However, the new CEO can restore a great deal of investor confidence in various ways. For instance, by recalibrating investor expectations to more realistic targets compared to the $10 billion in free cash flow goal set by Ortberg's predecessor, Dave Calhoun. Ortberg has also been on record stating that Boeing's defense business needs to enhance its estimate-at-completion (EAC) processes. If a company can't get its internal EAC right, it's highly likely to disappoint external stakeholders with its forecasts. Additionally, Ortberg is taking the opportunity to review the company's portfolio, and the possibility of restructuring could generate value for investors.Putting all these factors together, it becomes evident that much of what Boeing needs to achieve is attainable, and the management has multiple avenues to add value for investors. There is always the cyclical risk of an economic slowdown and its impact on airplane orders, but Boeing essentially has a story of self-help at its core.Risks and Headwinds Facing Boeing
Boeing faces numerous obstacles on its path to recovery. The aerospace sector continues to grapple with persistent supply chain difficulties, creating challenges for both aircraft manufacturers and suppliers. These headwinds make it difficult and costly to boost production. For example, GE Aerospace initially expected to deliver 20%-25% more LEAP engines (which power the Boeing 737 MAX and the Airbus A320neo family) in 2024 compared to 2023. But by the third quarter, its management now predicts a 10% decrease from 2023. Meanwhile, another supplier, Spirit AeroSystems (a company Boeing spun off and now plans to buy back), is burning cash and has warned investors that it may not be able to continue operating.Increasing airplane production won't be a straightforward task and could prove expensive if Boeing is forced to inject cash into Spirit and wait for suppliers to align with planned production hikes. To make matters worse, Boeing's defense business continues to incur losses due to multibillion-dollar charges on fixed-price development programs. Improving its EAC processes will take time and won't have an immediate impact on ongoing projects.The Next Generation of Airplanes
The commercial aerospace industry operates in cycles. New airplanes are introduced (the latest major narrowbodies being the Boeing 737 MAX and Airbus A320neo), which generates cash over several years as delivery volumes increase. Moreover, as this occurs, profit margins expand as the unit cost of production tends to decline.However, the 737 MAX's cash-generating cycle has deviated from the planned trajectory since its first delivery in 2017. The impacts of the two catastrophic accidents leading to 737 MAX groundings, the pandemic, and subsequent supply chain issues have resulted in significant cash outflows at Boeing while debt has accumulated.When considering Boeing's valuation and even accepting a recovery leading to substantial cash generation, investors need to think about the financial position it will be in 10 years when it needs to start investing and preparing for a new airplane to enter the market.A Stock to Consider or Not?
There is upside potential for Boeing's stock, but it is unlikely to be a buy-and-hold stock that will make investors wealthy overnight. There are too many risks involved, and it seems that Boeing will miss out on a significant portion of the cash-generation phase with the 737 MAX. As a result, it will be more suitable for investors seeking a recovery story rather than long-term investors who are willing to buy and forget.Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.Unveiling the Financial Pulse of the Week
Oracle's Earnings: Insights into Corporate Tech Demand
On Monday, Oracle (ORCL) Corporation is set to release its earnings after the closing bell. This provides a crucial window into the demand for corporate tech services. By analyzing these earnings, we can gain a better understanding of how the corporate sector is faring in terms of technological needs. It offers valuable insights into the trends and challenges faced by Oracle and the broader corporate tech industry. 2: The release of Oracle's earnings is not just a financial event but also a barometer of the overall health of the corporate tech market. It allows investors and analysts to assess the company's performance and make informed decisions about their investments. Moreover, it gives an indication of how different sectors within the corporate tech space are evolving and adapting to the changing business environment.GameStop's Earnings: Spotlight on the Retail Market
On Tuesday, GameStop (GME) will take center stage with its earnings report, also scheduled for after the market close. This is a significant event for the retail industry as GameStop has been a prominent player in the gaming and retail space. The earnings report will shed light on the company's performance and its ability to navigate the shifting economic conditions. 2: GameStop's earnings hold particular importance as it reflects the consumer spending habits and preferences in the retail sector. It provides insights into how the gaming market and the broader retail industry are responding to changes in consumer behavior. By analyzing GameStop's earnings, we can gain a better understanding of the trends and challenges faced by the retail industry and make predictions about its future trajectory.Adobe's Earnings: Unveiling Financial Insights
Wednesday shifts the focus to Adobe (ADBE), which will reveal its financials at the end of the trading day. Adobe is a leading player in the software and creative industries, and its earnings report is closely watched by investors and industry experts. 2: The release of Adobe's earnings will offer valuable insights into the company's performance and its ability to innovate and grow in a highly competitive market. It provides a snapshot of the financial health of Adobe and its various business segments. By analyzing Adobe's earnings, we can gain a better understanding of the trends and challenges faced by the software and creative industries and make predictions about their future development.Broadcom's Earnings: Clues to Semiconductor and AI Markets
Thursday rounds out the week with a series of significant earnings announcements. AI giant Broadcom (AVGO) will report its performance, offering clues about the health of the semiconductor and AI-driven technology markets. 2: Broadcom's earnings are of great significance as it operates in the highly dynamic semiconductor and AI sectors. The report will provide insights into the company's performance and its ability to capitalize on the growth opportunities in these industries. It helps investors and analysts assess the market trends and make informed decisions about their investments in semiconductor and AI-related stocks.Costco's Earnings: Insights into Consumer Spending Habits
Retail powerhouse Costco (COST) will also release its results on Thursday, shedding light on consumer spending habits amid shifting economic conditions. 2: Costco's earnings are a key indicator of consumer behavior and spending patterns. By analyzing Costco's performance, we can gain a better understanding of how consumers are adjusting their spending in response to economic changes. It provides valuable insights into the retail market and helps businesses and policymakers make informed decisions.Inflation Data: Insights into the U.S. Economy
This week, key inflation data will be released, providing important insights into the state of the U.S. economy. On Wednesday, the Consumer Price Index (CPI) and core CPI data will be published, shedding light on inflationary trends and the cost of living. 2: These inflation reports are closely watched by economists and investors as they help gauge the effectiveness of monetary policy. By analyzing the inflation data, we can gain a better understanding of the factors driving inflation and its impact on the economy. It provides valuable information for policymakers and businesses to make informed decisions about pricing, investment, and economic policies.Initial Jobless Claims and PPI Data: Snapshot of the Labor Market
On Thursday, the market will receive initial jobless claims data, offering a snapshot of the labor market's health, along with the Producer Price Index (PPI) and core PPI data. The PPI measures inflation at the wholesale level and provides an early indicator of potential price pressures in the broader economy. 2: The initial jobless claims data gives an indication of the labor market's strength or weakness. It helps investors and policymakers assess the employment situation and its impact on consumer spending and economic growth. The PPI data, on the other hand, provides insights into the cost pressures faced by businesses at the wholesale level and their potential impact on consumer prices.Import Price Index and U.S. Retail Sales: Key Drivers of Economic Growth
Finally, on Friday, the Import Price Index and U.S. retail sales figures will be released. The Import Price Index will highlight changes in the cost of goods imported into the U.S., while retail sales data will offer a look into consumer spending patterns. 2: These two data points are crucial for understanding the dynamics of the U.S. economy. The Import Price Index reflects the global economic trends and their impact on the cost of imported goods. Retail sales data, on the other hand, provides a direct measure of consumer spending, which is a key driver of economic growth. By analyzing these data, we can gain a better understanding of the economic conditions and make informed decisions about investments and economic policies.Microsoft's Bitcoin Vote: A Corporate Dilemma
Microsoft (MSFT) will determine on Tuesday whether to invest in Bitcoin. Although the board has recommended voting against the proposal, citing that the company already considers a wide range of investable assets, including Bitcoin. 2: This decision by Microsoft highlights the complex nature of investing in Bitcoin and the challenges faced by corporations in navigating the cryptocurrency market. It raises important questions about the role of Bitcoin in the financial landscape and the risks and opportunities associated with it. By analyzing Microsoft's decision, we can gain a better understanding of the evolving attitudes towards Bitcoin and its potential impact on the corporate world.The AI Summit: Transforming Lives and Sectors
The AI Summit kicks off in New York on Wednesday, bringing together industry leaders and innovators for two days of exploration into how artificial intelligence is transforming lives and reshaping various sectors. The event will feature keynote speakers from major tech giants such as Google (GOOGL) and Meta (META). 2: The AI Summit is a significant event that showcases the latest advancements and applications of artificial intelligence. It provides a platform for industry leaders to share their insights and experiences and explore the potential of AI in different sectors. By attending the summit, we can gain a better understanding of the future of AI and its impact on our lives and the economy.Uncover the Stocks with Extraordinary Upside in the Stock Market
Sirius XM Holdings: Implied Upside of 59%
Sirius XM Holdings (SIRI 4.58%) stands out as the first Nasdaq stock with substantial potential upside. This company dominates satellite radio services in North America, boasting 34 million paying subscribers. When including its ad-supported Pandora music streaming service, its customer base expands to an impressive 150 million, making it unrivaled in terms of audience reach. However, the recent economic downturn and a complex merger took a toll. High inflation forced cash-strapped consumers to make difficult decisions with their limited disposable income, leading some to let their SiriusXM subscriptions lapse. There was also a fundamental misunderstanding of its recent merger, reverse stock split, and the resulting complex accounting transactions, which negatively affected its results. These factors combined caused the stock to decline by 51% this year. But appearances can be deceiving. In the third quarter, Sirius' revenue slipped 4% year over year to $2.17 billion, with a loss per share of $8.74 compared to diluted EPS of $0.82 in the previous year quarter. However, this needs to be viewed in context. The company took a one-time, non-cash impairment charge of $3.36 billion related to its acquisition of Liberty Sirius XM tracking stock. Without this one-time charge, Sirius would have achieved EPS of approximately $1.17, representing a 43% increase. At the same time, paid subscribers increased by 14,000 due to lower churn. Paid promotional subscribers, which declined by 114,000 as automakers transitioned to shorter or unpaid plans, further impacted the results. Some on Wall Street believe the selling has gone too far. Benchmark analyst Matthew Harrigan maintains a buy rating on Sirius XM with a price target of $43, indicating a 59% upside compared to Thursday's closing price. The analyst cites an investor disconnect surrounding the recent merger and believes that management's "strategic initiatives" will bear fruit. Moreover, the lower stock price presents a compelling opportunity for savvy investors like Warren Buffett, who has been accumulating the stock. Sirius XM is currently trading at around 8 times earnings, with little future growth factored into the stock price, presenting a significant opportunity.
I am confident that with the steadily improving economic conditions, churn will continue to slow down, and subscriber growth will gradually resume, which will be the catalyst needed to drive Sirius XM stock higher.
Symbotic: Implied Upside of 115%
One outcome of the rise of online retail has been a rush to modernize warehouse automation. This is where Symbotic (SYM 0.14%) steps in. The company has developed artificial intelligence (AI) solutions to automate the processing of individual cases and full pallets, maximizing the use of warehouse space. Symbotic has created advanced algorithms that control a fleet of smart robots working together to stock pallets, load and unload trucks, and handle individual crates. By doing so, the company can fit more inventory into less space, saving customers money. By increasing efficiency, reducing labor costs, and cutting operating and delivery expenses, Symbotic's systems generate quick returns. The company estimates that each "module" can pay for itself multiple times during its useful life, saving companies tens or even hundreds of millions of dollars. The results speak for themselves. In its fiscal 2024 fourth quarter (ended Sep. 28), Symbotic's revenue grew by 47% year over year to $577 million, with EPS of $0.05, reversing a significant loss in the previous year quarter. After announcing a restatement of earlier 2024 quarterly financial reports, management noted that these were due to timing differences with "no impact to full-year fiscal year 2024 results." On Thursday, Symbotic filed its annual report with no further changes, removing the final uncertainty from the stock. Following the company's quarterly results, Cantor Fitzgerald analyst Derek Soderberg reiterated his overweight (buy) rating and $60 price target on the stock, representing a 115% potential upside compared to Thursday's closing price. The bullish stance came after the analyst questioned management about its recent international expansion agreement with Walmex and the status of its warehouse-as-a-service joint venture. Similar to many early-stage, high-growth stocks, Symbotic stock carries some additional risk, so any position should be managed appropriately. On the bright side, after its recent sell-off, Symbotic is trading at a bargain price of just 1.5 times sales. I believe this is an attractive price to pay for a leader in an emerging AI-driven industry.