The latest issue involving a Boeing (BA -7.47%) jet is likely to lead to more regulatory scrutiny and could sap whatever momentum the stock had. Investors are responding to a series of negative analyst responses by selling Boeing shares, sending the stock down about 7% as of 11:30 a.m. ET Tuesday.
Will Boeing meet its 2024 production plans?
Boeing has taken investors on a bumpy ride over the past five years. First, the company faced issues with its 737 MAX that led to an 18-month grounding of the jet. A pandemic-related sales slowdown followed, and even as airlines have bounced back and demand for jets has recovered, Boeing has continued to be plagued by recalls and troubles with its 737, 787, and 777 lines.
The latest issue occurred last week, when a 737 MAX operated by Alaska Air Group lost pressurization at 16,000 feet after a door plug fell out mid-flight. The Federal Aviation Administration (FAA) is currently investigating the incident, which could impact nearly 200 similar planes operating around the globe.
The investigation to date suggests the door plug failure was a manufacturing fault, and not a design flaw, and the fix is likely to be relatively straightforward. But it is another black eye at a time when Boeing is struggling to regain investor confidence. And the incident is likely to cause the FAA to ramp up scrutiny of Boeing production lines, which could slow deliveries or delay the certification of future designs.
Wall Street has taken notice. On Tuesday, Boeing was downgraded to equal weight, from overweight, by Wells Fargo, with a price target drop to $225 from $280. Analyst Matthew Akers wrote that the added scrutiny “opens up a whole new can of worms” that will take time to be fully understood.
Bank of America also lowered its price target on Boeing shares, to $255 from $275, though the bank kept a buy rating on the stock. And TD Cowen analyst Cai von Rumohr cut his 2024 737 delivery estimates from 560 to 475 planes.
When will it be safe to buy Boeing shares?
The Alaska Air incident, in a vacuum, appears to have a pretty straightforward fix. But given all of the problems Boeing has had over the years, it is hard to look at this incident in isolation.
Boeing shares are down by 50% from their highs from five years ago, and with strong demand for commercial airplanes the stock should be set up well to rise from here. But the speed of the ascent is very much in question, and it is possible FAA action, Congressional investigations, or other unforeseen speed bumps could slow the pace further in the months to come.
The biggest challenge Boeing faces right now is restoring its credibility with investors. That will take time and require Boeing to eliminate these quality control issues that continue to pop up. Until Boeing can demonstrate it has its act together, there isn’t much reason for investors to get excited.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
