Boeing's Supply Chain Headwinds Cloud Near-Term Prospects, Analyst Says While Downgrading Stock

  • RBC Capital analyst Ken Herbert downgraded Boeing Co BA from Outperform to Sector Perform and a $225 price target.
  • The analyst believes Boeing's execution on the 737 MAX program is the most important for the sentiment on the stock in 2023. 
  • Although Herber did not see downside risk to the Boeing 2023 MAX delivery guidance (400-450), he did expect 2023 noise around production and delivery rates. 
  • The analyst believes Boeing continues to struggle to stabilize at a rate of 31/month on the MAX, and planned rate increases in 2023 will be a challenge. 
  • Moreover, the pace of deliveries out of inventory will likely remain a headwind. 
  • The analyst's checks suggest that tier 2 and 3 suppliers pose an unappreciated supply chain risk. 
  • After the 2022 supply chain issues, the analyst anticipates steady improvement (especially with tier 1s). But expected incremental cracks in the supply chain as Boeing looks to push production rates up on the MAX and 787. 
  • Commentary on supply chain execution and risk (especially with tier 2 and 3 suppliers) was more pronounced over growing concerns about suppliers' ability to invest in labor and material and the potential ripple effect of higher financing costs. 
  • Herbert did not anticipate BA to change its focus on monetizing its current portfolio. 
  • Herbert anticipates BA will account for under 40% of the NB deliveries from 2020-2025, with an even smaller share out through 2030.
  • Herbert saw risk with the 787 production ramp, the outlook in China, persistent questions about the company's product strategy, margin expansion in the defense business, and the pace of the travel recovery.
  • Price Action: BA shares traded higher by 0.08% at $209.52 on the last check Friday.
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