Boeing drops after Wells Fargo cut as ‘FAA audit opens up a whole new can of worms’

Wells Fargo analysts downgraded Boeing (NYSE:) stock to Equal Weight from Overweight with a price target cut to $225 per share from the prior $280.

The analysts think that the risk of production/delivery impact has increased “significantly” after the recent Alaska Air flight drama.

“We don’t see enough upside to justify this risk and downgrade,” the analysts said.

BA shares fell 2.5% in pre-market Tuesday.

Wells Fargo is skeptical about the likelihood of Boeing receiving a clean audit from the Federal Aviation Administration (FAA). BA has grappled with quality issues, and the external scrutiny is a new development, according to the firm.

While the FAA’s audit currently focuses on the MAX 9, there’s potential for it to expand to other MAX models sharing common parts. Given Boeing’s recent quality track record and the FAA’s heightened motivation to identify issues, Wells Fargo sees low odds for a clean audit.

The on-time certification of MAX 7/10, constituting around 25% of the 2025 backlog, also appears uncertain, adding further challenges for Boeing.

Moreover, the broker sees less cash upside in the near term.

“Our above-consensus FCF view was based on more 737s being liquidated from inventory along with production costs normalizing, and supported by China likely restarting deliveries this year. All three seem at risk given the Alaska Airlines incident and FAA follow-on oversight,” the analysts wrote.

Despite the latest selloff, the analysts also noted that BA’s valuation is still not attractive enough to justify an Overweight rating.