Boeing's $10 Billion Free Cash Flow Target Delayed by 2 Years, Stock Downgraded by Wells Fargo - Analysis & Impact
In a recent report, Wells Fargo stated that Boeing's annual free cash flow target of $10 billion may be delayed until 2027-28, requiring the company to raise $30 billion before developing a new aircraft. As a result, the stock was downgraded, causing shares to fall over 7% after the bell.
Lead analyst Matthew Akers pushed Boeing to an "underweight" rating and cut the target price to $119, a 32% downside to the last closing price. The company currently carries about $45 billion in net debt, which must be addressed before starting the next aircraft development cycle. Akers warned that cutting the debt would consume cash flow through 2030.
Boeing has been working to recover from a crisis triggered by a mid-air accident in January, which led to regulatory restrictions on its 737 MAX production, impacting its free cash flow. Akers emphasized the importance of shoring up the balance sheet soon, estimating a $30 billion equity raise to achieve zero net debt by 2027.
If Boeing were to delay new planes and focus on paying down debt, Akers believes the company's free cash flow per share could grow to about $20 this decade. However, this strategy could risk losing market share to rival Airbus SE in the long run. Boeing's shares have already dropped nearly 38.2% this year.
In response to the report, Boeing referenced CFO Brian West's commitment to managing the balance sheet prudently and supplementing liquidity as needed. The company had previously outlined a goal of achieving a $10 billion annual cash flow target by 2025 or 2026.
In conclusion, Boeing's financial challenges and the need to raise significant funds before developing new aircraft could impact its stock performance and market competitiveness. Investors should closely monitor the company's debt reduction efforts and cash flow management to gauge its future prospects in the aerospace industry.
