Investors in aerospace giant Boeing (BA 3.75%) recently received more bad news. An analyst at Melius Research downgraded the stock from "buy" to "hold" while maintaining a $209 price target. While there's no consensus on what these designations mean, I believe most investors should interpret a "hold" rating as a "sell."
Boeing has its issues in multiple segments
Boeing has no shortage of issues, and the Melius analyst believes Boeing might miss its long-held target of hitting $10 billion in free cash flow in the 2025 to 2026 timeframe. The target was laid out in November 2022 at the Boeing Investor Day presentation, and management probably thought it was so far off that it would inevitably hit it.
Over one year later, the company's well-documented quality control issues caused a slowing in the production ramp on the Boeing 737.
It's worth noting that amid the attention paid to its commercial airplanes, Boeing's defense business also faces challenges involving charges and cost overruns. In October, CFO Brian West admitted that the performance of the defense business fell below expectations, and the recovery progress was not as advanced as anticipated. He also mentioned that the defense business might not contribute as much as originally expected to the $10 billion in free cash flow target.
Will Boeing hit the target FCF by the end of 2026?
The Boeing 737 production ramp issues have caused the analyst community to lower its estimates. The consensus is that Boeing will fall just short of the $10 billion target in 2026.
This is not to say that the stock isn't a good value prospect for patient investors. Boeing still has a backlog of nearly 5,600 planes on order, including 4,300 Boeing 737s. Its main rival, Airbus, is also struggling to ramp up production. Moreover, $10 billion represents about 8.7% of its current market cap, so there's a case for buying the stock even if the target is hit after 2026. Indeed, the Melius price target suggests some 11.5% upside for the stock over the next 12 months.
