Boeing’s (BA) increased regulatory oversight and slower production could make the company’s delivery and free cash flow targets difficult to achieve, Morgan Stanley said Wednesday while pointing to lower-than-expected first-quarter deliveries from the production line.
The brokerage reduced its price target on the stock to $180 from $235. It reiterated an equal-weight rating, saying that the risk-reward is balanced at current levels. Boeing data showed Tuesday that its first-quarter deliveries tumbled to 83 from 130 a year earlier.
Deliveries of the 737 model, which has been the focus of several recent incidents including when a side panel blew off of an Alaskan Air (ALK) flight in January, was 67 in the first quarter, according to Boeing. Data from Cirium point to 40 of those coming from the production line and 27 from inventory, Morgan Stanley said.
“An estimated 40 737 deliveries from the production line are much lower than we expected and shows the magnitude of impact in which the (Federal Aviation Administration’s) presence has had on Boeing’s production,” Morgan Stanley said. Shares of Boeing fell 2.5% in midday trade.
The plane manufacturer’s 2025 and 2026 free cash flow outlook of $10 billion is predicated on per-month production of 50 737 MAX jets and 10 787s, according to the brokerage. “The steep expected recovery in 737 deliveries from production likely puts the target of 50 per month by 2025/2026 at risk,” it said.
Morgan Stanley lowered its 737 delivery cadence for 2024 to 376 aircraft from 504 previously, reflecting the lower-than-expected deliveries from production in the first quarter.
Boeing’s 737 delivery estimates for the 2025 to 2027 period were reduced by a collective 10%, according to Morgan Stanley’s model. The brokerage is estimating 509 deliveries in 2025 and 504 in 2026, down from a respective 572 and 600 previously. Deliveries from production are now expected to reach a rate of 50 per month by 2027, rather than 2026, Morgan Stanley said.
The brokerage lowered its free cash flow estimates for the 2024 to 2028 period by a combined $10.6 billion, including to $1.35 billion from $5.29 billion for 2024, the report showed. Morgan Stanley now models a per-share loss of $0.81 this year, from a prior view of a $1.85 per-share profit. Its 2025 EPS was slashed to $3.61 from $6.20. Analysts on average are forecasting 2024 and 2025 normalized EPS of $0.82 and $6.91, respectively.