- Global economy to weigh on near-term sales, Credit Suisse says
- Risks to cash position prompt downgrade by Wells Fargo
Boeing Co. fell the most among members of the Dow Jones Industrial Average after analysts warned that cheap oil and rising interest rates could clip near-term aircraft sales and hamper the strong cash generation that has drawn investors to the stock.
Global economic concerns may weigh sales over the next couple of years, Credit Suisse analyst Robert Spingarn wrote Friday in a report to clients. He lowered his 2016 and 2017 earnings estimates to between $9.35 a share and $9.60 for 2016 and 2017, while raising his target price to $158 from $156.
“Shares look range-bound until the malaise passes,” Spingarn said. Chicago-based Boeing still stands to reap a cash bonanza of as much as $20 a share by 2020, with the planemaker logging a near-record order backlog and finally expected to break even next year on its 787 Dreamliner program, he said.
Boeing dropped 4.1 percent to $139.58 at the close in New York, the stock’s biggest one-day decline since Oct. 14.
The planemaker has drawn investors for the cash it should generate as it speeds factory output of models such as its single-aisle 737, a workhorse for low-cost carriers, and the 787, whose carbon composite hull brings fuel savings to carriers and lessens the effects of jet lag for travelers by enabling higher humidity levels.
But comments by Richard Anderson, the chief executive officer of Delta Air Lines Inc., that prices are plunging for used wide-body jets have spurred concerns that the market is glutted. That may indicate softening demand and values for new Boeing and Airbus Group SE models as low oil prices sap the urgency for airlines to purchase new fuel-efficient jets. Delta is purchasing a used 777 jetliner for $7.7 million, Anderson said Thursday.
The costs of developing a new airliner to fill the gap once held by the 757, a midrange aircraft that last rolled out of Boeing’s factory a decade ago, could weigh on Boeing’s cash position, Sam Pearlstein, an analyst at Wells Fargo, wrote in a report. He downgraded Boeing to market perform, the equivalent of a hold rating.
“While free cash flow is to remain strong, it may not reach the levels investors hope in the near/medium-term,” Pearlstein wrote. He lowered his target price to between $154 and $158 from $163 to $166.