Shares of Boeing Co. Enter "Bear-Market" Territory

Shares of Boeing Co. have continued to fall, pushing the stock into "bear-market" territory. This decline comes after a downgrade by Wells Fargo, who expressed concerns about the ongoing Federal Aviation Administration (FAA) investigation.

The FAA's probe has significantly increased the risk of production and delivery disruptions, according to analyst Matthew Akers. In a note titled "FAA audit opens up a whole new can of worms," Akers highlighted the potential negative impact on Boeing's stock and stated that the upside potential may not outweigh the associated risks.

In morning trading, the aerospace and defense giant's stock BA, -7.11% dropped by 7.1%, reaching a two-month low. This decline has contributed to a decrease of approximately 101 points in the Dow Jones Industrial Average DJIA, which fell by 126 points or 0.3%. The impact of Boeing's stock on the Dow is well-documented and worth exploring further (find more information here).

Boeing's stock has now plunged by 23.4% since its 2 1/2-year closing high of $264.27 on Dec. 15. This decline was exacerbated by an incident involving a fuselage panel blowout during a flight of a 737 Max 9 and the subsequent FAA announcement of a formal investigation.

Given the magnitude of the decline, many on Wall Street consider a decrease of 20% or more from a bull-market closing high as an indication of a bear market. It is worth noting that the closing price on Dec. 15 was 48.7% higher than the 10-month closing low of $177.73 recorded on Oct. 25.

Related Reading: One investment manager suggests that Boeing's stock should be in the penalty box for now.

Wells Fargo Downgrades Boeing Stock

Wells Fargo's analyst Akers has downgraded Boeing's stock to equal weight, marking a significant shift after being a buy since November 2021^1^. He has reduced the price target by 20% to $225^1^, resulting in the lowest target out of all 32 analysts surveyed by FactSet who cover the company^1^.

According to Akers, the FAA audit initially focuses on the MAX 9^2^. However, he suggests that the findings could potentially extend to other MAX models that share common parts^2^. Given Boeing's recent track record and the FAA's motivation to uncover any problems, Akers believes the chances of a clean audit are low^2^.

Akers has also revised his forecast for Boeing's 2024 free cash flow downward, from $6.8 billion to $5.8 billion^2^. This figure now falls below the FactSet consensus of $5.9 billion^2^.

With the FAA prioritizing safety over a speedy resolution, Akers predicts that the return of the 737 Max 9 will face delays^2^. He expects a slower resolution compared to previous incidents in Boeing's history^2^.

Boeing's stock performance has been far from satisfactory, as it has experienced a substantial decline of 22.4% in January^3^. This decline represents the largest monthly drop since September 2022, when the stock plummeted by 24.4%^3^. In comparison, the Industrial Select Sector SPDR ETF XLI has lost only 2.4% this month, while the Dow has slipped 0.6%^3^.