Boeing Gets a Downgrade From Morgan Stanley, a Victim of Success

Headwinds ahead

Boeing Co. is “leaving a catalyst-rich period behind,” Morgan Stanley analysts said Tuesday, as the benefits of regulatory clearances for two of its planes fade and supply-chain issues persist.

Boeing (BA) was lowered to a hold recommendation from a buy rating, but its price target was boosted to $220 from $213. Boeing’s stock fell 0.9% on Tuesday.

Boeing manufactures the renowned B-52 bomber for defense.

Boeing also manufactures T-7 Red Hawk training jets, MQ-25 Stingray drones, and KC-46 tankers for the Air Force and Navy. Its P-8 Poseidon spy plane is popular with both the US and the UK. The Navy and its allies.

Boeing is developing the Crew Space Transportation-100 Starliner to carry astronauts into space, as well as NASA’s Space Launch System, the most powerful rocket ever built.

Both projects have experienced significant delays. SpaceX, on the other hand, has already launched multiple operational crewed flights to the ISS.
According to analysts, Boeing shares have gained roughly 65% since October 3, compared to 7% gains for the S&P 500. They claimed that the stock was “approaching cruising altitude” after two years of positive results for the company.

“The years 2021 and 2022 were catalyst-rich for Boeing as the corporation overcame adversity.”
“Major regulatory and operational challenges associated to its two largest cash-generating programs, the 737 MAX and 787,” Morgan Stanley analysts wrote in a research note on Tuesday.

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Regulatory news

Boeing’s 737 Max jets were grounded in 2019 following two tragic disasters, but passenger service resumed in the United States by the end of 2020. Last year, regulators permitted Boeing to resume delivery of its 787 Dreamliner planes after manufacturing concerns slowed output.

“With regulatory relief paving the way for restarting 737 MAX and 787 deliveries, and with both programs now executing towards more normalized production rates, the market appears to be pricing in near full value to Boeing’s ability to meet its 2025/2026 targets of $10 [billion] in free cash flow with 737 MAX production rates of 50 per month and 787 production rates of 10 per month,” they added.

Analysts predicted that Boeing shares would move in line with its free cash flow and the achievement of its 2025 and 2026 jet production plans. While they stated that aircraft demand remained high, they classified the company’s supply chain as a “bottleneck” for aircraft production and delivery growth that will be critical to earning cash.

Nonetheless, experts predicted that Boeing’s free cash flow would be positive in 2022, after the business consumed $28.3 billion from 2019 to 2021.

FactSet tracks 19 analyst ratings on Boeing, 15 of which are “buy ratings” or the equivalent.

Boeing stock dropped about 1% in the last year. In comparison, the S&P 500 Index is down almost 16% during that time period.

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