Aerospace behemoth Boeing (NYSE: BA) has now delivered another bad news to its investors. Stock was downgraded from "buy" to "hold" by an analyst at Melius Research, who kept the price objective at $209. Even if there isn't universal agreement on the meaning of these labels, I think most investors should see a "hold" rating as a "sell."
Many areas of Boeing's business are problematic. The Melius analyst is concerned that Boeing may fail to achieve its long-standing goal of achieving $10 billion in free cash flow between 2025 and 2026, adding to the company's lengthy list of problems. At the Boeing Investor Day presentation in November 2022, the goal was set, and management likely believed it would be hit because it was so far off.
The organization's well-documented quality control flaws slowed the ramp of production for the Boeing 737 more than a year later.
In spite of all the focus on Boeing's commercial planes, the company's defense division is also having trouble with charges and cost overruns. October saw CFO Brian West's admission that the military business's performance was below expectations and that recovery progress was slower than expected.
He went on to say that the defense sector might not chip in as much toward the $10 billion free cash flow goal as initially anticipated.
By the year's end of 2026, will Boeing have achieved the desired FCF? Due to problems with the Boeing 737 manufacturing ramp, estimates have been lowered by the expert community. The general opinion is that Boeing will just miss the $10 billion mark in 2026.
This doesn't rule out the stock as a solid value opportunity for those willing to wait. Approximately 4,300 Boeing 737s are among the nearly 5,600 planes that remain on order with Boeing. Similarly, Airbus, its primary competitor, is finding it difficult to increase output.
You can still make a case for purchasing the stock if the aim is not reached until after 2026, since $10 billion is equivalent to approximately 8.7 percent of its current market size. The 12-month price target from Melius indicates a potential 11.5% increase for the company.
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