Boeing shares dropped 8% following Wells Fargo’s release of an unusually bearish report on the stock.
Wells Fargo has downgraded Boeing ($BA) from “Equal Weight” to “Underweight” and has lowered its price target for the stock from $185 to $119.
The analysts at Wells Fargo explained that they see Boeing’s free cash flow reaching its peak by 2027. However, this peak is expected to be followed by increased aircraft development costs, which will offset the benefits of further production growth. The analysts also noted that Boeing might need to raise more equity, which could lead to a dilution of shares, making existing shares less valuable.
Boeing was previously seen as having a significant opportunity to generate free cash flow this decade. This was expected to be driven by increasing production of its well-established aircraft, which would require relatively low new investment. However, due to extensive delays and rising costs, Wells Fargo now anticipates that the cash flow generated from production will be constrained by the need for new aircraft investments. This means that Boeing’s free cash flow could be capped in a few years.
Additionally, Wells Fargo pointed out that Boeing currently has $45 billion in net debt on its balance sheet. The analysts believe that paying down this debt would use up all of Boeing’s cash reserves through 2030, leaving little room for other financial maneuvers. This significant debt burden is another factor contributing to their cautious outlook on Boeing’s financial future.
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