Boeing’s problems could soon be seen on Wall Street

Wall Street’s patience with Boeing might be running out.

The aircraft maker’s stock is still up 15% since the start of the year. While shares fell sharply in the month after the March 10 Ethiopian Airlines crash that led to the grounding of the 737 Max, they have remained little changed in the seven months since then.

But it’s clear that in recent months numerous analysts have lost patience with the company. Even some of those who are bullish on the stock are cutting their price targets.

As recently as late August, more than twice as many analysts had a buy or strong buy recommendation on Boeing stock as a neutral or hold recommendation. Today those who are advising investors to hold the stock just slightly outnumber those with any kind of buy recommendation. The mean target price has fallen 12% in that time to $370, close to the current price.

“Has the street lost some of its patience? Sure it has,” said Ronald Epstein, aerospace analyst with Bank of America Merrill Lynch.

Epstein cut his recommendation to neutral in April, soon after the grounding. He doesn’t think the shares can continue to tread water if Boeing continues to struggle with a myriad of problems, many of which go far beyond the grounding of the Max, the company’s best-selling jet.

An earlier version of the 737, the 737 NG, or Next Generation, likely needs a redesign of its engine covers after a recent probe into a fatal accident in April 2018. It also has dozens of those jets grounded due to cracks discovered in an interior structural support. Epstein believes those two problems with the NG could themselves cost the company a couple of billion over the course of several years.

In addition, the new 777X had its first delivery pushed back to 2021 from 2020 due a problem with its General Electric engine. And last month Boeing announced plans to cut production of the 787 Dreamliner, as global trade worries cut into demand. Epstein expects these two setbacks could cost Boeing a couple of billion dollars more.

The next plane on its drawing board, a mid-sized jet popularly referred to as the 797, may never fly as the company’s problems have diverted the resources needed to launch it.

Epstein believes the full extent of Boeing’s woes are not yet priced into the stock. He estimates the Max crisis could eventually cost Boeing about $17 billion, roughly twice what it has already admitted to in various filings.

No one suggests that the company is facing any threat to its survival. Boeing’s balance sheet is still strong, and even critics acknowledge that it will be flush with cash once it can start delivering the hundreds of 737 Max jets it has continued to build since March.

“This too will pass. But a lot of investors will have lost patience with them by then,” he said. “A lot had to do with the overpromising and underdelivering when things were going to happen.”

Boeing has continually insisted that a fix for the 737 Max is just around the corner. Until last month it held out hopes that it would deliver the first 777X in 2020 until it finally conceded the engine problem would push back delivery until 2021. Executives insist it still is weighing plans for a new midsize jet, although they admit their focus is on the Max.

Those promises have prompted brief surges in the stock, but haven’t been sustained as Boeing misses internal deadline after internal deadline.

Even some bulls are worried that time is running out for Boeing to live up to its promises and get the stock back on track.

“Every time it looks like they’re close to getting [approval for the Max to fly again], it slips for one reason or another,” said Cai von Rumohr, analyst with Cowen who still has a buy recommendation on the stock. “The reason I’ve stuck in is it looks like they could make it by the end of the year. But we’re at a breaking point.”