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Oct 21, 2019

Boeing shares slide on internal survey 'pressure' concerns

The Boeing Co. logo sits on the side of a 737 Max aircraft during preparations ahead of the Farnborough International Airshow 2016 in Farnborough, U.K.

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Boeing Co. shares tumbled on Monday, extending the previous session’s sharp drop after the planemaker received at least three analyst downgrades on increased risk related to the company’s best-selling 737 Max jet. The moves follow reports that a pilot working on the 737 during its certification expressed concern about a feature that was subsequently implicated in two fatal crashes.

UBS wrote that the news “reinforces the perception of and heightens the potential of incomplete disclosure, which inherently puts more money/trust & time at stake.” The firm cut its view to neutral from buy, and its price target to US$375 from US$470. UBS also lowered its view on Spirit AeroSystems, citing the company’s “outsized exposure” to the 737 Max.

Shares of Boeing fell as much as 5.7 per cent, putting it on track for a two-day drop of more than 12 per cent, the biggest such decline since March. Friday’s 6.8 per cent decline represented the biggest one-day percentage loss for the Dow component since February 2016. The market value lost over the two-day slide exceeds US$21 billion.

“We can no longer defend the shares in light of the latest discoveries, discoveries which significantly increase the risk profile for investors,” wrote Credit Suisse analyst Robert Spingarn, who called the news “indefensible.”

Credit Suisse cut its view on the stock to neutral from outperform and slashed its price target to US$323 from US$416. The news “may shatter the fragile trust between regulators and BA,” increasing political risk and potentially undermining public confidence in the aircraft. This “could have [long-term] demand implications,” while the reputational damage to Boeing’s brand “could also metastasize to other BA products.”

Baird cut its view on the stock to neutral from outperform, seeing “increased production risks” over the next 24 months following “textgate,” a reference to the text messages between Mark Forkner, then Boeing’s chief technical pilot for the 737, and another 737 technical pilot, Patrik Gustavsson.

While Baird analyst Peter Arment sees a recovery in free cash flow in 2020 and 20201, he wrote that “it will be at reduced levels.” He cut his target to US$342 from US$445, bringing the overall analyst average to about US$401, down from US$415 a week ago.

With the moves, Boeing now has 14 buy ratings, 14 holds, and two sells, according to data compiled by Bloomberg. The consensus rating on the stock -- a proxy for its ratio of buy, hold, and sell ratings -- stands at about 3.77 out of 5, its lowest since July 2017.

The sell-off in Boeing shares prompted at least one firm to look for bargains. Buckingham Research Group, which has a neutral rating and US$395 price target on the stock, called Friday’s drop “overdone,” adding that the “unwarranted sell-off sets up an interesting opportunity.”

Buckingham analyst Richard Safran expects the stock to “eventually recover as the press reports may actually not be as negative as many perceived.”