New Boeing Rating as Credibility Weakens and Shares Take a Nosedive

Shares of Boeing (BA) were down modestly heading into the company’s earnings call on Tuesday morning.

In our opening comments we touched on Q3 2026 delivery levels and reminded you that our play with BA in the Portfolio is to benefit from incremental operating leverage as those delivery levels move higher. During the earnings call, however, BA shares came under incremental pressure when the management team shared that ramp would be slower than expected.

Management now expects 737 deliveries to fall short of its 500-aircraft target for 2026, and it sees 787 deliveries landing near the low end of its 90 to 100 range. Looking to 2027, CEO Kelly Ortberg expects total commercial deliveries to rise more than 10%, aided by roughly 30 pre-built 737-7 and 737-10 aircraft that will start delivering early next year, with program-level detail coming in January. The first 777X delivery is still slated for 2027, and management put next year’s 777X deliveries at roughly 10 to 15 aircrafts. But the expectation is that the bulk of that increase will come in the back half of the year. Those delivery volumes underpin Boeing’s new multiyear free cash flow outlook of roughly $2 billion this year, $3 billion in 2027, $6 billion in 2028 and $10 billion in 2029.

In Ortberg’s view, that is about a one-year shift to right, but from our perspective, the picture laid out above during the earnings call was different than the comment shared during an interview on Tuesday morning when Ortberg shared that Boeing is ramping up aircraft production the right way. Turning companies around takes time, and people often compare it to turning around a large tanker ship. The analogy goes that starting to turn a tanker ship starts off slow but as it gains momentum the turning accelerates.

With Boeing, the initial turn is taking longer than expected and that means expectations for 2027 and 2028 revenue, EPS and, as we saw above, free cash flow levels are going to come down. That explains the added pressure on the shares and far higher than normal trading volume.

Yet Boeing’s backlog continues to grow and order activity should remain at healthy levels. As we’ve thought, higher fuel prices are pushing airlines to replace older aircraft with more fuel-efficient ones. However, given what we’ve heard from airline companies in recent weeks and questions over how consumers will react to another step up in airfares, we’re expecting more modest new aircraft orders until oil and related prices fall.

Commercial Aerospace Expected to Approach Breakeven in 2028

The bottom line is that Boeing’s existing aircraft backlog provides a very long runway for its Commercial Aerospace segment, but with that segment now not expected to approach breakeven until early 2028, that is a considerable time to wait. Granted, it’s a bit easier to swallow given the steady performance for Boeing’s Defense, Space & Security and Global Services segments, which together account for 55% of revenue and currently all the company’s operating profits.

It’s still a long time to wait and candidly, management’s credibility is once again on the line.

Downgrading to a Three rating

With the outlook changing considerably, it would be irresponsible of us to maintain our Two rating.

The temping move would be to rip the cord on BA shares, but given the trading volume so far on Tuesday is more than 3.6-times the average daily trading volume in the shares and they have crossed into an oversold condition, the prudent move is to bide our time and use near-term strength in the shares to reduce our exposure to BA shares.

That means that we are downgrading BA shares to a Three rating from Two, and as the shares rebound, we will treat them either as a source of cash or funding for other Portfolio moves we may make.

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At the time of publication, TheStreet Pro Portfolio was long BA shares.