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Boeing Faces Rating Downgrades amid 737 MAX Crisis


Mar. 26 2019, Updated 9:31 a.m. ET

Analysts’ recommendations

Since the Ethiopian Airlines crash on March 10, Boeing (BA) stock has been facing rating downgrades from several analysts. Among the 25 analysts covering Boeing, six recommended a “strong buy,” 13 recommended a “buy,” four recommended a “hold,” and two recommended a “strong sell.” Before March 10, seven of the 24 analysts recommended a “strong buy,” 12 recommended a “buy,” and five recommended a “hold.”

Boeing stock saw its first “sell” or some equivalent rating in the last 19 months. Wall Street analysts’ average target price for the stock has fallen to $436.95 from $443.75 on March 10.

Recently, Boeing lost a long-term bullish backer. On March 19, Argus Research analyst John Eade downgraded his rating on the stock to “hold” from “buy” due to the company’s response to two deadly crashes involving its fast-selling 737 MAX.

In a note to clients, Eade said, “We think the investigation is likely to cap multiples, and that earnings forecasts are likely to decline,” according to CNBC.

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Boeing is reeling from one of the worst periods in its history following two deadly crashes. The world’s largest airplane manufacturer (XLI) is facing a probe from federal agencies about its anti-stall system. The system is implanted in the company’s 737 MAX aircraft. There might have been lapses or misconduct in gaining approval for the system.

Following the Ethiopia crash, countries and air carriers around the world have grounded their 737 MAX fleets. Currently, there are 371 737 MAX jets in operation worldwide.

Analysts were too optimistic

Before the Ethiopia crash, analysts were very bullish about Boeing stock. Over the past month, various analysts provided glowing remarks for the company. Big research firms including Credit Suisse (CS), Morgan Stanley (MS), UBS, and JPMorgan Chase (JPM) reiterated their “buy” ratings and raised the target price.

Most of the research firms thought that Boeing’s revenues and free cash flow would improve due to the healthy commercial aerospace demand environment. Research firms expected increased pricing and the 737 MAX’s production rate to bring in additional revenues and cash flows.


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