Boeing Downgraded by Wells Fargo

(Reuters) – Boeing (NYSE:BA)’s target for annual free cash flow of $10 billion may be postponed by approximately two years to 2027-28. Additionally, it would need to raise $30 billion before developing a new aircraft, according to Wells Fargo, who also downgraded the stock.

Shares of the Dow component dropped more than 7% after market hours, amid a decline that has brought the market to a near one-and-a-half-year low on Tuesday. Lead analyst Matthew Akers pushed Boeing to an “underweight” rating and reduced the target price to $119, signifying a 32% downside compared to the last closing price.

Akers noted that “Boeing carries about $45 billion net debt,” which must be addressed before initiating the next aircraft development cycle. He added that debt reduction would consume its cash flow through 2030.

Boeing is currently recovering from a crisis caused by a mid-air accident in January, which prompted regulatory restrictions on its 737 MAX production, putting further pressure on its free cash flow.

Given a likely new aircraft launch in the next few years, Akers stated that Boeing needs to strengthen its balance sheet sooner. He estimates a roughly $30 billion equity raise would be required to return to zero net debt by 2027.

In response, Boeing referred to CFO Brian West’s comments from the July earnings call, where he stated the company would manage its balance sheet prudently and supplement liquidity as needed.

In 2022, Boeing outlined an annual cash flow target of $10 billion for 2025 or 2026.

Akers mentioned that Boeing’s free cash flow per share could rise to about $20 this decade if they postpone new planes for “several more years” and focus solely on debt repayment. However, this could risk losing market share to rival Airbus SE (OTC:EADSY) in the long term.

As of now, Boeing’s shares have lost nearly 38.2% of their value this year.