777X charge seen as a clearing event for Boeing stock

Investing.com -- Morgan Stanley said a potential multibillion-dollar charge tied to Boeing’s 777X delays could serve as a “short-term clearing event” for the stock, even as the long-term cash effects may weigh on the bullish case.

The firm noted that sentiment had turned more positive in the past year as 737 MAX and 787 deliveries improved.

Since Boeing’s equity offering at $143 a share in October 2024, the stock is up about 38 percent versus a 16 percent rise in the S&P 500.

But optimism paused after Chief Executive Kelly Ortberg acknowledged at Morgan Stanley’s Laguna Conference that the company is behind schedule on 777X certification, saying there remains a “mountain of work” and that even a “minor schedule delay on the 777 program has a pretty big financial impact.”

Boeing shares have since underperformed, falling about 6 percent versus a 1 percent gain in the S&P 500 as investors anticipate a potential $4 billion charge.

Morgan Stanley said that number is a “rough guesstimate on what’s big enough but not too big.”

“In our view, a 777X charge could be a short-term clearing event for the stock, but based on the lessons learned from the 787, the lingering effect on cash could last a few years and therefore pressure the Bull case,” the analysts wrote.

The bank reiterated its Equal-weight rating and $235 price target on Boeing.

Consensus remains bullish, with 85 percent of analysts rating Boeing Overweight. But Morgan Stanley said free cash flow expectations could be at risk, stressing the need for clarity on “the size of the charge, what the charge encompasses, the annual cash impact…and the assumptions regarding costs and aircraft price.”

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