A Wall Street analyst sees tough times up ahead.
Boeing (BA -8.18%) shareholders have endured wave after wave of bad news in recent years. At least one analyst sees no quick rebound.
Shares of Boeing traded down 7% as of 10:30 ET after the stock was downgraded and its price target was slashed to well below the current price.
No easy path forward
Boeing’s woes are well known. A pair of fatal crashes grounded the company’s 737 MAX for 18 months and sparked an in-depth look at the company’s manufacturing practices that has led to significant delays in other aircraft programs as well. The company has fallen behind its internal production goals, causing problems for customers and leading airlines to look elsewhere.
Unfortunately, these troubles occurred during a strong upward period for this notoriously cyclical industry. Boeing’s rivals are generating significant profits and cash flow.
Wells Fargo analyst Matthew Akers fears that missing this demand surge will cost investors in the long run. Akers downgraded Boeing to underweight from equal weight and cut his price target to $119 from $185.
Akers expects Boeing’s free cash flow to peak by 2027 as future aircraft development costs offset production growth, and he believes an equity raise is likely. Boeing’s debt ballooned to $45 billion due to the crisis. Paying that off would consume all its expected cash through 2030, according to Akers.
Is Boeing a buy?
Boeing shares are down more than 60% from where they were before the first MAX incident. It is tempting to see the issues as temporary and conclude the stock is a buy for long-term holders. Akers’ downgrade highlights the danger in that thinking.
Boeing is half of a powerful global duopoly and will have ample opportunities to restore sales and rebuild its business. But the company is saddled with billions in debt, and aircraft demand is not limitless.
Given Boeing’s spotty recent history, investors should stay away until the company proves it has solved its manufacturing problems. But even if that happens, be warned that Boeing faces a long road to recovery from there.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.