Bernstein cuts Boeing stock to Market Perform amid concerns over recovery path

Investing.com -- Bernstein analysts cut their rating on Boeing (NYSE:BA) stock from Outperform to Market Perform and slashed the price target from $195 to $169, citing concerns over the company's recovery timeline.

The move comes in the wake of Boeing’s latest quarterly report. Moreover, the recent decision by the International Association of Machinists (IAM) to continue their strike has not aided confidence in Boeing's stock.

Despite Boeing's completion of a $21.1 billion capital raise, which resulted in a 22% dilution but offered short-term stock support, Bernstein analysts remain skeptical.

“We have stressed the need for a compelling recovery plan,” analysts led by Douglas S. Harned said in a Tuesday note.

Boeing's new CEO, Kelly Ortberg, has acknowledged the need for cultural change, business stabilization, and improved execution. However, Bernstein points out that Boeing faces a challenging journey ahead, including rebuilding its leadership team after losing experienced leaders across various levels.

“We need to see specifics on the plan for recovery and rebuilding leadership talent,” analysts continued.

“We see the headcount reduction program as a distraction. Excess overhead is real, but not at the root of Boeing’s issues, and near-term cash is no longer needed. There will be a better time for this,” they added.

Furthermore, the outlook for Boeing's free cash flow (FCF) after the Q3 report is “materially worse.” Bernstein now estimates FCF to be approximately $4 billion negative in Q4 and $5 billion negative in 2025, a stark contrast to previous expectations of near breakeven cash flow in Q4 and slightly positive cash in 2025.

With debt repayments of more than $12 billion due in the next 18 months, Boeing's financial position appears more strained than anticipated.

“Cash hits from inventories and advances should reverse in 2026/27. But, this requires more confidence than we have,” analysts noted.

They highlight several key areas for Boeing's recovery, including ramping up 737MAX production with quality, increasing slow widebody deliveries, completing certifications, integrating Spirit AeroSystems (NYSE:SPR), and addressing losses in the defense sector

“We need clarity on the path to get there. Resolution of the strike will help. But, it is not enough,” analysts concluded.