Boeing Stock Faces Downgrade

by Warren Seah

Wall Street’s optimistic outlook for Boeing stock in 2024 took a hit following another 737 incident, which has raised concerns among investors. In light of increased Federal Aviation Administration (FAA) scrutiny of the aerospace giant, one analyst on Wall Street has recently downgraded Boeing shares.

Wells Fargo analyst Matthew Akers downgraded Boeing shares on Tuesday, changing their status from Buy to Hold. The corresponding price target has been reduced from $280 to $225 per share.

As a result of this downgrade, Boeing stock experienced a decline of 1.8% in premarket trading on Tuesday, while futures for S&P 500 and Nasdaq Composite were down 0.5% and 0.7% respectively.

The catalyst for this downturn can be traced back to the incident that occurred on January 5 involving a 737 MAX 9 operated by Alaska Air. During the flight, an emergency door plug blew out midair, leading to an emergency landing. Consequently, the FAA grounded 171 MAX 9 jets soon after the incident.

The onus now falls on Boeing and aircraft operators to thoroughly inspect and rectify the affected aircraft. There are approximately 200 MAX 9 jets currently in operation worldwide, with around 1,400 MAX jets of all types currently in service. Once inspections are complete and any issues addressed, the MAX 9s may be granted permission to resume operations. However, the FAA intends to adopt a cautious approach throughout this process.

Approximately one week after the blowout, on January 12, the agency announced that it would be conducting an audit of “the Boeing 737-9 MAX production line and its suppliers to evaluate Boeing’s compliance with its approved quality procedures.” The results of this audit will determine whether additional audits are required.

In conclusion, the recent downgrade of Boeing shares highlights the impact of the 737 incident and increased scrutiny from the FAA. Consequently, the aerospace giant must navigate these challenges to regain investor confidence.

The Risk of Production and Delivery Delays for Boeing’s MAX 9

Boeing is facing significant challenges when it comes to production and delivery delays. Quality issues have plagued the company for some time, and the recent audit by the FAA focuses on the MAX 9 model. However, there is a possibility that the findings could extend to other MAX models that share common parts. With Boeing’s track record and the FAA’s motivation to identify problems, the chances of a clean audit are low.

The troubled history of the MAX adds to the concerns. Following two fatal crashes within a short period, the plane was grounded worldwide from March 2019 to November 2020 due to a software design flaw. In 2023, Boeing disclosed quality problems with 737 MAX parts from supplier Spirit AeroSystems, although these issues did not result in accidents or further groundings.

Analyst Akers is the first to downgrade Boeing shares in 2024. Previously, Wall Street had a positive outlook for Boeing and the commercial aerospace industry. The company is expected to deliver approximately 700 planes in 2024, compared to 530 in 2023, with projected free cash flow increasing from $3 billion to $6 billion.

Despite the downgrade, the majority of analysts, around 75%, still rate Boeing shares as Buy. However, it is crucial for all stakeholders, including analysts, to see a resolution for the 737 MAX 9 before becoming more optimistic about the stock.

As of now, Boeing shares have declined by approximately 16% this year.

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