MIAMI – Amid concerns over the delayed return to service of the 737 MAX model, many analysts came into 2020 questioning the future of Boeing and its shareholders.
Some analysts have taken a bearish stance since the beginning of the first quarter, including the analysts at Vertical Research Partners, who downgraded Boeing’s stock to a hold rating on January 22.
However, much of Wall Street has followed suit since, especially in the wake of the COVID-19 outbreak that has sent shockwaves throughout all industries, with air travel grinding to an abrupt halt.
After mid-March, it seemed as though many of the previous suspicions regarding the manufacturer’s financial performance were being evidenced in the markets.
On March 19th, Boeing’s stock fell below $100 for the first time since 2013. While shares have risen above that level since, they have not reached anywhere near the previous 52-week high of $391.
The most recent bearish shift came from Citibank yesterday, after the bank’s lead analyst downgraded Boeing to a hold. Many equity analysts cite the company’s dwindling free cash flow along with falling demand for airline travel as the main drivers behind their downgrades.
Government support and federal regulations
In addition, many recognize the likelihood that the airline manufacturer will have to seek external sources of funding in order to remain afloat. The United States government has already made provisions for approximately $17 billion in emergency loans under the CARE Act.
While accepting government support is an option, many within the company are wary of federal regulations, which stipulate that Boeing must suspend dividends and workforce changes.
Even as President and Chief Executive Officer David Calhoun dismissed the potential for a government purchase of shares, there is little upside to cling onto.
Downgraded credit ratings
While Boeing’s market value has fallen over 60% in the past year, credit ratings also offer a rather gloomy outlook on the American company. As of early April, every major ratings agency has downgraded Boeing to near junk bond levels.
In late March, both Standard & Poor’s and Fitch downgraded Boeing credit to BBB. The most recent credit downgrade came on April 10, when Moody’s, which projects a potential need for $30 billion in additional funding in the near future, lowered the manufacture’s rating to Baa2.
While Boeing’s credit rating remains investment grade, growing concerns over further delivery delays across all product lines have left many investors worried.
Only time will tell how Boeing will manage to persevere in light of the continued 737 MAX grounding and COVID-19 pandemic.