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Boeing Faces Downgrade at Wells Fargo Boeing Faces Downgrade at Wells Fargo

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NTSB Continues Investigation Into Midair Fuselage Blowout Of Alaskan Airlines Boeing 737 Max 9

Photo by Mathieu Lewis-Rolland

Boeing (NYSE:BA) faced a setback on Tuesday as it was downgraded by Wells Fargo, an esteemed financial-services firm. The aircraft manufacturerโ€™s investment rating was decreased from Overweight to Equal Weight. This news ruffled the feathers of investors and lingered heavily in the morning trading sessions, causing a 2.5% decline in Boeingโ€™s shares.

Quality Issues Amplified

The downgrade was attributed to concerns about Boeingโ€™s ability to meet its plane-delivery targets. The recent midair emergency involving a Boeing 737 Max 9 jet has prompted increased scrutiny from aviation authorities. Wells Fargo analyst, Matthew Akers, expressed that while Boeing has been grappling with quality issues for some time, the heightened inspection from an external party is a new dimension to the ongoing challenges.

FAAโ€™s Audit and Price Target Reduction

An audit by the Federal Aviation Administration (FAA) has been limited to the 737 Max 9. However, there are apprehensions that the findings may lead to a broader scope, encompassing other Max models that share common parts.

Wells Fargo also took the step of reducing its price target for Boeing from $280 to $225 per share. This decision was made based on a projected multiple of 16 times free cash flow per share for 2025. The firmโ€™s analysts adjusted their free cash flow estimates for 2024 downwards to $5.8 billion from $6.8 billion, citing concerns over plane deliveries.

Concerns About Resolution Pace

โ€œWe continue to forecast approximately $11 billion in 2026 free cash flow, as we see plenty of underlying demand to reach Boeingโ€™s target production rates, and its fourth-quarter stock move indicates how fast sentiment can shift as production issues are resolved,โ€ the report from Wells Fargo stated. โ€œHowever, given FAAโ€™s audit and its comment โ€˜safety, not speedโ€™ determines when Max 9 flies again, we expect a slower resolution this time.โ€

Boeingโ€™s woes deepened when a 737 Max 9, during an Alaska Airlines flight, experienced a cabin malfunction, further raising concerns about the companyโ€™s quality controls. The incident, in which a door plug blew out shortly after takeoff from Portland, Oregon, prompted an emergency landing. While there were no serious injuries, the incident dealt a blow to Boeingโ€™s reputation and confidence in its best-selling commercial plane, the 737 MAX.

Target Production Rates in Peril

Boeingโ€™s 737 MAX is a linchpin of its revenue, making the recent events a significant cause for concern. Investors are now eyeing the companyโ€™s ability to address production issues while ensuring its planes meet stringent safety standards.

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