Boeing stock hits near 2-year low after Wells Fargo downgrade: what investors should know

Boeing Co.'s stock plummeted more than 8% on Tuesday, reaching its lowest level in nearly two years, following a downgrade by Wells Fargo.

This significant decline came after Wells Fargo analyst Matthew Akers downgraded Boeing’s stock from "equal-weight" to "underweight," setting a new price target of $119.

This estimate represents the lowest among analysts tracked by Bloomberg and suggests a potential 32% decline over the next 12 months based on Friday’s closing price.

What did Wells Fargo say?

In his report, Akers detailed several challenges Boeing faces, which he believes will restrict any near-term stock recovery.

A primary concern is Boeing’s free cash flow per share, a crucial valuation metric for the company.

Akers noted that Boeing carries approximately $45 billion in net debt and must address this before initiating a new aircraft development cycle.

He warned that debt reduction could deplete the company's cash flow until 2030.

Akers also mentioned the likelihood of a new aircraft launch in the coming years, which would require Boeing to strengthen its balance sheet sooner.

He projected a necessary equity raise of roughly $30 billion to eliminate net debt by 2027.

Additionally, Akers suggested that Boeing might need to issue more shares, potentially diluting existing shareholders.

Source: TradingView

Operational risks and external pressures

Beyond financial concerns, Boeing is grappling with several operational risks.

Akers highlighted potential labor disputes, reduced airline demand, and unresolved technical issues with the 777X jetliner and Starliner spacecraft.

A recent survey by Quantum Metric revealed a significant drop in passenger confidence in Boeing aircraft, with travelers increasingly researching and potentially avoiding Boeing products before booking flights.

These operational and confidence challenges compound Boeing’s difficulties as it strives to stabilize its business.

The company’s stock has already declined over 30% year-to-date, despite having 21 buy recommendations, 10 holds, and three sell ratings, with an average price target of $213, according to Bloomberg data.

Boeing's response and financial strategy

In response to these challenges, Boeing is making several strategic moves.

The company recently announced the replacement of CEO Dave Calhoun with Kelly Ortberg, former head of Collins Aerospace.

Boeing is also planning to acquire Spirit AeroSystems, a deal expected to close in 2025, which it hopes will improve service quality.

During its July earnings call, Chief Financial Officer Brian West addressed the financial challenges Boeing faces, indicating that the company might consider an equity raise to maintain its investment-grade rating.

Boeing has burned through more than $8 billion in cash in the first half of 2024 due to slowing production, quality control issues, and supplier shortages.

With a looming strike potentially disrupting operations at its Washington and Oregon plants, Boeing's financial flexibility is constrained.

West emphasized that maintaining an investment-grade rating is Boeing’s top priority, and the company is prepared to take necessary steps, including potential equity raises, to safeguard it.