Cowen’s Bullish Stance on Boeing (BA) Stock Comes to an End

In what was already a fraught start to the new decade, Boeing (BA) is again, unfortunately, in the headlines. A Boeing 737-800 passenger jet operated by Ukraine International Airlines crashed just minutes after takeoff from Tehran on Wednesday morning, killing all 176 passengers and crew on board. The plane is a different model than Boeing’s troubled 737 Max, which has been out of circulation since March 2019. To recap, 346 people were killed in two fatal crashes within a few months of each other in 2018 and 2019 resulting in the aircraft being grounded worldwide.

The latest tragic event involving a Boeing plane is likely to further up the pressure on the beleaguered multinational, which is still trying to recover from what has been one of the worst crises in the company’s century long history.

Boeing recently announced the suspension of production on the 737 Max. The company has continued producing new models since the grounding of its best-selling aircraft but due to the suspension of flights, has been unable to deliver the units to customers or collect payment, causing a pile up at its various storage facilities. The manufacturer said it had a backlog of 400 undelivered planes in storage.

Matters haven’t been helped any further by the Federal Aviation Administration’s admission its review of the planes will extend further into the year, with no set date yet for the model to return to service. Further adding to the turmoil, in December Boeing fired CEO Dennis Muilenburg who was unable to steady the company through the crisis.

The cash-draining issues have caused Cowen’s Cai Rumohr to reassess his thesis on BA. The 5-star analyst thinks “the stock may drift until BA can demonstrate momentum recovering from the MAX crisis.”

Therefore, Rumohr downgraded his rating on BA from Outperform to Market Perform, while also lowering the price target from $419 to $371. (To watch Rumohr’s track record, click here)

Rumohr further explained, “We’re paring our 2020-21 CFPS estimates to ~$15 (dn $3) and ~$26 (dn $5.50), respectively, to reflect likely (1) higher costs from the MAX production suspension, (2) larger customer compensation charges, and (3) extended burnoff of MAX advances from the delivery pushout. 2022 cash flow looks flattish as lower 737 deliveries are offset/ outweighed by (1) continuing healthy underlying cash from the 787, BDS, and Services, (2) favorable 777X swing as deliveries ramp, and (3) easing MAX customer compensation costs. But this assumes air traffic holds up and a peaceful 6/22 IAM contract renegotiation.”

TipRanks suggests caution has Wall Street fairly divided in its expectations on BA. Out of 18 analysts polled in the last 3 months, the fence sitters rule the majority, with 9 rating a “hold” on the aerospace giant, 8 maintaining a “buy,” and 1 issuing a “sell.” The consensus average price target points to $376.17, or 13% upside potential for the stock. (See Boeing stock analysis on TipRanks)

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