There's Evidence Boeing Job Cuts Correlate With Stock Gains

The Seattle Times is reporting that Boeing Co BA is expected to lay off 4,000 employees by June. According to Deutsche Bank analyst Myles Walton, that could be good news for shareholders.

Walton looked back at the last 18 years since the McDonnell Douglas merger at the correlation between Boeing’s workforce size and its share price. He found that Boeing’s share price lagged the market in five of the nine years that the company expanded its number of employees. However, eight out of the nine years Boeing cut jobs its share price beat the market.

Walton believes that the layoffs were triggered by competitive pricing pressures and the desire for the company to improve margins.

Related Link: ADP Employment Reading For March Comes In Better Than Expected

“A 10% margin for BCA in’17 alongside the effects share repo would yield a mid-teens EPS growth before considering the likely 4% additional top-line growth in’17 vs. ’16,” Walton explains.

Boeing’s website indicates that around 1,500 of the 4,000 anticipated 1H 2016 layoffs have already happened.
Deutsche Bank maintains its Buy rating on Boeing and has a $160 price target for the stock. The price target is based on an 11x multiple on Deutsche Banks 2017 FCF/share estimates.

The firm is looking for Q1 EPS of $1.77 from Boeing when it reports on April 20.

Disclosure: the author holds no position in the stocks mentioned.