Wall Street expected good things for
Boeing
stock in 2024. Then came another 737 incident, shaking investor confidence. Now one analyst on Wall Street has downgraded shares, saying more Federal Aviation Administration scrutiny of the aerospace giant opens “a whole new can of worms.”
Wells Fargo analyst Matthew Akers on Tuesday downgraded shares of
Boeing
to Hold from Buy. His price target went to $225 from $280.
Through midday trading Tuesday, Boeing stock was down 7.1% while the
S&P 500
was flat, and the
Nasdaq Composite
was up 0.2%.
Catalyzing the decline was the Jan. 5 incident involving a 737 MAX 9 operated by
Alaska Air Group.
An emergency door plug blew out in midair, resulting in an emergency landing. The FAA grounded 171 MAX 9 jets shortly after the incident.
Boeing, and aircraft operators, need to inspect and correct all the jets in question. There are about 200 MAX 9 jets operating worldwide. There are about 1,400 MAX jets of all types operating. Once checked and any issues corrected, the MAX 9s could be allowed to return to service, but the FAA is taking a cautious approach.
On Jan. 12, about a week after the blowout, the agency announced an audit of “the Boeing 737-9 MAX production line and its suppliers to evaluate Boeing’s compliance with its approved quality procedures.” It added in a news release: “The results of the FAA’s audit analysis will determine whether additional audits are necessary.”
The risk of production and delivery delays are significant, wrote Fargo’s Akers. “Boeing has struggled with quality issues for some time, [the] FAA’s audit is limited to MAX 9 for now, but it’s feasible that findings could expand the scope to other MAX models sharing common parts,” added the analyst. “Given Boeing’s recent track record, and greater incentive for FAA to find problems, we think the odds of a clean audit are low.”
The MAX has had a troubled recent history. The plane was grounded worldwide from March 2019 to November 2020 following two deadly crashes within five months. The crashes were tied back to a software-design issue. Then in 2023, Boeing disclosed some quality problems with 737 MAX parts delivered from supplier
Spirit AeroSystems.
Those issues didn’t result in any accidents or groundings.
Akers is the first analyst to downgrade Boeing shares in 2024. Coming into the year, Wall Street was feeling good about Boeing and the outlook for commercial aerospace. Boeing is projected to deliver some 700 planes in 2024, up from about 530 in 2023. Free cash flow is projected to go to roughly $6 billion from $3 billion.
Amid that backdrop, about 78% of analysts covering the stock rate shares Buy, up from about 59% a few months ago. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
The average analyst price target is currently about $278. BofA Securities analyst Ronald Epstein didn’t downgrade shares but cut his price target to $255 from $275 on Tuesday. “Turning around Boeing [will] take longer than expected,” wrote the analyst.
With the downgrade, 75% of analysts still rate shares Buy. Everyone, however—including analysts—will want to see a 737 MAX 9 resolution before getting more positive on the stock.
Coming into Tuesday’s trading, Boeing shares were down about 16% so far in January.
Write to Al Root at [email protected]
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