Boeing Stock Sinks On 737 Production Issue But Analysts ‘Cautiously Optimistic’

Boeing (BA) stock sank Friday after the company warned late Thursday of lower 737 Max airplane production and deliveries for the short term, citing production issues. BA stock tumbled on the news as analysts had expected Boeing to increase 737 Max output soon.

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The aviation giant announced late Thursday its 737 Max plane deliveries could be delayed due to a parts issue from supplier Spirit AeroSystems (SPR). Boeing stressed it is not a safety issue and that current in-service planes can continue to operate.

The manufacturing problem affects the 737 Max family of airplanes. This includes the Max 7, Max 8 and Max 8200 airplanes and the P-8 Poseidon maritime surveillance aircraft. However, Boeing said the issue is not safety related and current in-service planes can continue to operate.

“This is not an immediate safety of flight issue and the in-service fleet can continue operating safely,” Boeing said in a statement.

The problem involves the installation of two fittings that join the aft fuselage, made by SPR, to the vertical tail.

“We have notified the FAA of the issue and are working to conduct inspections and replace the non-conforming fittings where necessary,” Boeing said in the statement. “We regret the impact that this issue will have on affected customers and are in contact with them concerning their delivery schedule.”

The 737 Max passenger jet was grounded worldwide in 2019 after two fatal accidents. Since then, the airplane has returned to service with Boeing looking to ramp up deliveries.

Boeing Stock: Analysts React

Boeing stock sank 6.4% to 199.85 Friday during market trade, signaling a move below the 50-day line. Meanwhile, Spirit AeroSystems tumbled 19.7%. Both had been setting up near buy points.

Wolfe Research analysts Myles Walton wrote Friday he was “cautiously optimistic” Boeing can still hit 737 Max airplane guidance. Walton said the production delays comes “just after momentum was building in the right direction.”

However, the Wolfe Research analyst does not expect a stoppage of production on the back of this issue, but does expect a slowdown in final assembly as Boeing works through the inspection required prior to moving to final assembly.

Walton said Boeing should still be able to hit 400-450 deliveries even with this issue and that Boeing stock should find support at 200. The firm maintains an “Outperform” rating with a 240 Boeing stock price target.

Credit Suisse analyst Scott Deuschle on Monday concurred with Walton. Deuschle wrote that Boeing has not fully paused deliveries and continues to deliver aircrafts that have parts from alternative suppliers. Credit Suisse kept a “Neutral” rating on BA with a 220 price target.

Boeing stock sits 24th in IBD’s Aerospace/Defense industry group. BA has an 76 Composite Rating out of 99. Boeing stock has an 92 Relative Strength Rating. The EPS Rating is 27 out of 99.

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