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Boeing Falls after Bank of America Downgrades Stock

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Boeing gets downgraded

Boeing (BA) lost another bullish backer today. Bank of America (BAC) downgraded its rating for the stock to “neutral” from “buy,” saying that disruptions in 737 Max deliveries would last longer than it had anticipated earlier. Boeing stock opened trade 4% lower today after the news surfaced.

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BAC analyst Ronald Epstein said that he now expects normalization in deliveries of 737 Max series planes to take six to eight months, which is way higher than his earlier projection of three to six months.

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The analyst in his note to clients wrote on April 8 that “Regaining the Boeing 737 Max airworthiness certificate is not just a simple software fix,” Bloomberg reported. The analyst believes that the delay will cause an inventory buildup. Epstein cautioned that margins would decline “due to penalties owed to customers, weaker negotiating position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption.”

Analyst cuts 737 Max delivery forecast

Boeing is facing the worldwide grounding of its best-selling 737 Max series planes after the said model aircraft crashed twice in less than five months. Air carriers around the world have denied taking deliveries of 737 Max jets. Among major US air carriers (IYT), Southwest Airlines (LUV) is the largest buyer and has ordered 280 737 Max jets. American Airlines (AAL) and United Airlines (UAL) have placed orders for 100 jets each.

Several brokerage firms have downgraded their 737 Max delivery forecast for the year. Cowen and Company lowered its shipment projections for the model to 500 jets from 630 aircraft anticipated earlier. Similarly, Jefferies now expects Boeing to ship 497 737 Max aircraft, down from 580 units it projected previously.

As a consequence of frozen deliveries, Boeing last Friday announced cutting its monthly output of 737 Max series planes by 19% to 42 units from 52 units. The output cut means that the company is likely to miss its 2019 delivery targets of shipping 895–905 aircraft. Last year, the company delivered a record 806 jets, 580 of which were 737 Max series planes.

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