Shares of Boeing Co. kept falling Tuesday, enough to enter “bear-market” territory, after a downgrade by Wells Fargo, which said there’s a good chance the Federal Aviation Administration’s investigation won’t be “clean.”
The FAA’s probe “increases significantly” the risk that production and deliveries will be curtailed, analyst Matthew Akers wrote, in a note titled, “FAA audit opens up a whole new can of worms.” He doesn’t see enough upside for Boeing’s stock to justify that risk.
The aerospace and defense giant’s stock
BA
sank 7.9% in morning trading toward a two-month low. The $17.26 price decline was shaving about 114 points off the price of the Dow Jones Industrial Average
,
which fell 261 points, or 0.7%. (Read more about how Boeing’s stock can affect the Dow.)
The stock has plunged 24.1% from the 2 1/2-year closing high of $264.27 on Dec. 15, highlighted by the blowout of a fuselage panel while a 737 Max 9 was in flight and the FAA’s announcement of a formal investigation.
Many on Wall Street define a decline of 20% or more from a bull-market closing high as a bear market. The Dec. 15 close was 48.7% above the Oct. 25, 10-month closing low of $177.73.
Read: Boeing’s stock should be in the penalty box for now, investment manager says.
Wells Fargo’s Akers downgraded Boeing’s stock to equal weight, after being a buy since November 2021. He cut his price target by 20%, to $225 from $280, with the new target now the lowest of the 32 analysts surveyed by FactSet who cover the company.
“[The] FAA’s audit is limited to MAX 9 for now, but its feasible that findings could expand the scope to other MAX models sharing common parts,” Akers wrote in a note to clients. “Given [Boeing’s] recent track record, and greater incentive for FAA to find problems, we think the odds of a clean audit are low.”
Boeing moved to show it’s efforts in quality control, as it announced that Kirkland Donald, a retired U.S. Navy admiral, was named a “special advisor” to Chief Executive Dave Calhoun.
“Admiral Donald is a recognized leader in ensuring the integrity of some of the most complex and consequential safety and quality systems in the world,” Calhoun said. “I’ve asked him to provide an independent and comprehensive assessment with actionable recommendations for strengthening our oversight of quality in our own factories and throughout our extended commercial airplane production system.”
Meanwhile, Akers also cut his forecast for 2024 free cash flow to $5.8 billion from $6.8 billion, which is now below the FactSet consensus of $5.9 billion.
Given the FAA’s probe and the comment that safety, not speed will determine when the 737 Max 9 will fly again, Akers expects a “slower resolution” than what history might suggest.
Boeing’s stock has tumbled 23.1% so far in January, which puts it on track for the biggest monthly decline since it dove 24.4% in September 2022. In comparison, the Industrial Select Sector SPDR ETF
has lost 2.6% this month and the Dow has slipped 1%.
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