Boeing's disruptions to its 737 Max deliveries will likely last longer than initially expected, Bank of America Merrill Lynch analyst Ronald Epstein wrote in a note Monday, downgrading the stock to neutral from buy.
Boeing shares sank intraday.
"Regaining the Boeing 737 Max airworthiness certificate is not just a simple software fix," Epstein warned in a client note.
Boeing on Friday cut its output of 737 jetliners after two fatal crashes forced regulatory agencies to ground the aircraft.
The Bank of America Merrill Lynch (BofAML) analyst also slashed his 12-month price target to $420 from $480, compared with the average price target of $432, according to data compiled by Bloomberg.
Epstein now expects a six- to nine-month delay for 737 Max deliveries, he had initially thought there might be a lag of three to six months.
Such a delay means an inventory buildup that won’t start recovering until 2020, and may also "lower margins due to penalties owed to customers, weaker negotiating position with airlines as airlines consider cancellations, and operational inefficiencies from the production disruption," he cautioned.
Boeing shares plummeted as much as 4.4% to $374.88 for the biggest drop in about four weeks. The stock has lost 11% since the Ethiopia crash, the second fatal crash of a 737 Max jet.
What Bloomberg Intelligence said on Friday:
"The company thinks it will take longer than expected for regulators to end the grounding of the 737 Max. Lower output won’t change profit and loss because without deliveries, Boeing books neither.
Our analysis shows the cut positions Boeing to generate zero cash in 2019 if deliveries don’t resume, protecting its financial health and ratings." – George Ferguson.