Boeing Co (NYSE: BA)'s pause of 737 Max production led Bank of America to shave $10 from its price target on the stock Monday.
Ronald Epstein reiterated a Neutral rating on Boeing and lowered the price target from $370 to $360.
BofA's Boeing Thesis
The price target cut came on the same day as Boeing's announcement that CEO Dennis Muilenburg has resigned and one week after Boeing announced it will suspend 737 Max production starting in January.
On Dec. 20, Boeing supplier Spirit Aerosystems announced it will pause its production line in January as well.
The Spirit Aerosystems news is troubling given the difficulties the company had in ramping up past production, Epstein said in a Monday note. (See his track record here.)
The analyst now expects the current fleet of grounded 737 Max aircraft will return to the skies no sooner than May 2020, and that Boeing will not resume 737 Max production until July 2020.
As a result of the delayed timeline, BofA raised its 2020 Boeing free cash flow per share estimate from $22 to $25 and lowered 2021/2022/2023 estimates from $27/$31/$32 to $20/$26/$29.
The updated price target is based on a 6.5% FCF yield on Boeing’s 2022 estimates, Epstein said.
"We use a modestly lower FCF yield to reflect our view of investor willingness to take on the 737 Max risks and the view that we are incrementally closer to [the 737’s return to service]."
Boeing Price Action
Boeing shares were trading 2.17% higher at $335.27 at the time of publication.
Despite the 737 Max problems being an albatross around Boeing’s neck in 2019, the stock has held up relatively well on the year, up 2.1% overall. If Boeing can finally put the 737 Max problems behind it next year, long-term investors could eventually benefit from the value opportunity the negative headlines have created.
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