Boeing cut at RBC Capital on worse-than-expected supply chain constraints

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Boeing (NYSE:BA) was cut to Sector Perform from Outperform, with its price target kept at $225 per share by RBC Capital analysts on Friday.

The analysts cited worse-than-expected supply chain constraints as the primary reason for the downgrade.

“We believe continued supply chain execution challenges will limit near-term upside deliveries, and will be an overhang on investor sentiment,” said analysts. “We do not expect downside to the 2023 MAX delivery guidance, but expect inconsistent production levels preventing investors from giving the stock full credit for the expected 2025/26 FCF upside.”

RBC also sees risk with Boeing’s 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.

“We believe investors are underwriting a more consistent improvement in supply chain execution that we believe is unlikely. After the 2022 supply chain issues, we anticipate steady improvement (especially with tier 1s), but also believe that as Boeing looks to push production rates up on the MAX and 787, we will see incremental cracks in the supply chain,” the analysts added.

Boeing shares closed Thursday’s session down 2.5%, although it has gained 8.5% in 2023.