Bank of America Backs Boeing Shares Despite Production Challenges

Boeing's stock price experienced a decline last week, settling at $198.20 on Friday, September 18. In the last five trading sessions, the shares lost nearly 5%, contributing to a year-to-date drop of almost 13%. This downward trend followed comments made by Boeing CEO Kelly Ortberg during Morgan Stanley's Laguna Conference on September 16, where he detailed ongoing production challenges and delays in certification testing for key aircraft models.

Ortberg addressed persistent issues with the 737 and 787 production ramps. He revealed that the 737 assembly line has not yet reached its goal of producing 47 jets per month, largely due to complications with in-house wing manufacturing. Despite these hurdles, Ortberg noted that the overall supply chain remains stable, which offers some reassurance amid the difficulties.

He also provided an update on the 737 MAX 10 variant, indicating that certification is expected soon. "When I left Seattle yesterday, I think we had three deliverables to complete," Ortberg said, highlighting that the final steps are underway. Meanwhile, the certification process for the 777X, Boeing's widebody aircraft, has been extended into 2027, marking a delay of about seven years. This extension is attributed primarily to an engine seal issue affecting the GE9X turbine supplied by GE Aerospace.

GE Aerospace responded by stating that certification can continue using the current engine seals, and that the upgraded components began shipping in August. This development may help ease some concerns about the timeline moving forward.

Boeing's operations span commercial jets, defense aircraft, and space systems. Production delays have a direct impact on revenue streams and the company's ability to meet delivery commitments to airline customers. These challenges have heightened investor anxiety, which was reflected in the recent stock price drops following Ortberg's disclosures.

Despite the negative market reaction, Bank of America views the situation differently. Ronald Epstein, an aerospace analyst with over a decade of experience and a five-star rating from TipRanks, described the stock sell-off as an overreaction. Epstein reaffirmed his Buy rating on Boeing shares and maintained a price target of $270, suggesting significant upside potential from current levels.

In a research report, Epstein noted that Boeing's shares fell nearly 7% intraday after Ortberg's comments, but he emphasized that these setbacks were anticipated from the beginning of the production and certification processes. He pointed out that such delays are common in aerospace manufacturing, especially with complex aircraft like the 777X.

The aerospace sector is known for its cyclical nature and long development timelines, which can test investor patience. Boeing, as one of the largest aerospace and defense companies globally, plays a crucial role in commercial aviation and military contracts. The company's efforts to resolve production issues and meet certification milestones will be closely watched by market participants.

Bank of America's recommendation to buy Boeing shares reflects a belief that the current stock price decline provides a buying opportunity. The firm appears confident that Boeing's ongoing turnaround efforts and eventual resolution of production challenges will lead to improved financial performance and shareholder returns in the coming years.

As the aerospace industry continues to recover from the impacts of the global pandemic and supply chain disruptions, companies like Boeing face pressure to deliver new aircraft efficiently and maintain customer trust. Investors will be monitoring how the company navigates these hurdles and whether it can accelerate the certification and production of its key models to regain momentum.