Boeing Shares Slump as Wells Fargo Cuts to Rare Bearish View

(Bloomberg) -- Boeing Co. slumped on Tuesday as Wells Fargo & Co. lowered the planemaker to a sell-equivalent recommendation, saying it’s hard to see any upside in the shares.

The stock fell as much as 8.9%, touching the lowest intraday level since November 2022, as analyst Matthew Akers downgraded his rating on the company to underweight from equal-weight and cut the price target to $119, the lowest among analysts tracked by Bloomberg. 

The move leaves Akers as one of only three analysts of the more than 30 that Bloomberg follows to recommend that investors sell the stock. The new share-price projection implies a roughly 32% decline over the next 12 months relative to Friday’s close.

In a note released Tuesday, Akers said he expects free cash flow per share — Boeing’s main valuation metric — to peak by 2027 as aircraft development costs offset further production growth. Akers also said further dilution of the stock through an offering of additional shares is likely.

“A substantial further equity raise is needed in the coming years, further diluting shareholders,” Akers wrote. 

He also flagged risks such as labor strife, softening airline demand and technical issues that need to be resolved for both the 777X jetliner and Starliner spacecraft.

Through Friday’s close, Boeing’s stock has tumbled more than 30% year to date. It now has 21 buy recommendations, 10 holds and three sells, with an average price target of $213, according to data compiled by Bloomberg.

A Boeing spokesman declined to comment on the Wells Fargo move, but pointed to Chief Financial Officer Brian West’s remarks during the company’s earnings conference call at the end of July.

West signaled on the July 31 call that the planemaker was prepared to contemplate an equity raise to protect its investment-grade rating. Once a prodigious cash generator, the aviation titan burned through more than $8 billion in cash during the first half of 2024 as it slowed work in its airplane factories to tackle lax quality controls and supplier shortages.

The outflows are likely to continue with Boeing still manufacturing below its production rates at the start of the year, and with a strike looming that could halt work in plants in Washington and Oregon. Capital strategy is one of the most critical issues facing Kelly Ortberg, who took over as chief executive officer at the embattled company last month.

Boeing is already laden with $58 billion in debt, limiting its options to keep free cash flow above the level that would pressure its investment-grade rating.

“We are in regular conversations with all three rating agencies,” West said during the earnings call. “They, like us, are all focused on the operating performance of the company, our ability to generate free cash flow, and the absolute debt reduction,” he said.

“And we tell them what we consistently said to everyone, that investment-grade is the number one priority and as we regularly monitor our liquidity, if we are ever to bump up against maturities, we’re to do what it takes to protect that rating, period,” he said. 

--With assistance from Bre Bradham.

(Updates shares, adds company official’s comments.)

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