Analyst overhauls Boeing stock price target as cash issues persist

Updated at 9:56 AM EDT

Boeing shares slumped lower in early Tuesday trading after a top Wall Street analyst slashed his price target on the struggling planemaker as it embarks on a new era under CEO Kelly Ortberg.

Boeing ( BA ) , which has shed around $15 billion in value over the past six months, is looking to draw a definitive line under the quality and responsibility issues that it has faced since the two fatal 737 Max crashes of 2018 and 2019 that killed 346 people and devastated its global reputation.

Boeing's years-long effort to win back trust in the safety of its workhorse jet, which was grounded by virtually every aviation administration in the world, found support when the planemaker won permission to resume deliveries of the 737 Max aircraft to China, the world's biggest aircraft market, earlier this year.

However, that effort suffered a major setback shortly afterward, when a door plug on a different version of the 737 Max blew open during an Alaska Airlines flight in January and forced an emergency landing for the 171 passengers on board.

Last month, the Department of Justice signed-off on a plea deal struck between Boeing and the crash victims' families. The agreement would see the company plead guilty to a criminal fraud conspiracy charge and pay a maximum fine of around $487 million.

Calhoun makes way for Ortberg

Still, quality issues continue to plague the group, which brought in a new CEO to succeed the retiring Dave Calhoun and establish a stronger relationship with regulators and investors. The group also moved its headquarters from Chicago to Arlington, Va., to be close to Washington and Pentagon officials.

Earlier this spring, however, the Federal Aviation Administration issued an airworthiness directive that demands inspections of 158 planes, including the workhorse 737 Max, after a 787 Dreamliner operated by Latam went into an uncontrolled nosedive that injured around 50 passengers before being corrected by pilots.

Related: Boeing’s 777X line hits another snag as testing is paused

Ortberg's first challenge for investors, however, will be to arrest the cash burn and profit slumps that have characterized the group's finances over the past five years, even amid the ongoing surge in global travel and the associated surge in aircraft demand.

Boeing lost $1.4 billion over the three months ended in June and said the cash burn would continue through to the end of September. Boeing used $4.33 billion in cash over Q2 after burning through $3.93 billion over the first three months.

Boeing cash burn a concern: Bank of America analyst

Bank of America analyst Matthew Akers, who lowered his rating on Boeing stock to underweight from equal weight in a note published Tuesday, said the group had a "generational free cash flow opportunity this decade, driven by ramping production on mature aircraft and low investment need."

"However, after extensive delays and added cost, we now see growing production cash flow running into a new aircraft investment cycle, capping free cash flow a few years out," Akers said.

"We see the company's free cash flow peaking by 2027 as aircraft development costs offset further production growth, and believe an equity raise is likely to further dilute the shares," Akers argued. He sees Boeing doing a $30 billion equity raise by 2026.

Related: New Boeing CEO has a huge mess to untangle

"Boeing carries $45 billion net debt on its balance sheet, and paying this down would consume all of its cash through 2030," added Akers, who also lowered his price target on the group by $66 to $119 a share.

Boeing's debt pile, as well as its cash-flow challenges, led Standard & Poor's to lower the group's credit rating one step close to junk status, at BBB-, earlier this spring. The credit ratings company said that further reductions could follow.

Moody's Investors Service and Fitch Ratings also rate the group at the lower end of the investment grade scale.

"We are in regular conversations with all three rating agencies, and they, like us, are all focused on the operating performance of the company, on our ability to generate free cash flow, and the absolute debt reduction, and we tell them what we continually said to everyone," finance chief Brian West told investors last month.

"The investment grade is the number one priority. And as we regularly monitor our liquidity, if we are ever to bump up against maturities, we're going to do what it takes to protect that rating, period," he added.

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Boeing shares were marked 7% lower in early Tuesday trading to change hands at $161.53 each, a move that would extend the stock's six-month decline to around 19.5%.

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