Cowen downgrades Boeing shares: 'Turnaround will take time'

Published Wed, Jan 8 20208:58 AM ESTUpdated Wed, Jan 8 20204:05 PM EST

Michael Sheetz @in/michaeljsheetz @thesheetztweetz

Cowen on Wednesday lowered its rating of Boeing stock to market perform from outperform, citing the extended 737 Max crisis for piling on the company's costs and delaying production. The note did not mention the crash of a Boeing 737-800 in Iran that killed all 176 people on board. That aircraft was not a 737 Max model and operator Ukraine International Airlines said the cause of the crash was not immediately known. Cowen's downgrade comes a few weeks after Boeing replaced CEO Dennis Muilenburg with David Calhoun , a person who Cowen said is "a good choice for CEO." However, the firm said it believes Boeing's "turnaround will take time," as the company is working to recertify its 737 Max aircraft. Two 737 Max crashes within five months killed 346 people, resulting in the aircraft being grounded worldwide. Boeing shares slipped 1.8% in trading Wednesday to close at $331.37. The company announced in December it is suspending production of the 737 Max line this month, which Cowen identified as a reaction to Boeing's misreading of the timeline needed to return the plane to service. "It cuts risk of further build in MAX inventory from [year end]'s already sizable 400+ planes but will boost costs by disrupting the supply chain and extending the period over which planes are produced," Cowen analyst Cai von Rumohr wrote in the note. The Cowen analyst sees Boeing's annual free cash flow holding near $15 a share in 2020 and $26 a share in 2021 while the company works to recertify the plane. Cowen estimated that 737 Max deliveries will resume in about two months. "It's unclear when production will restart and at what rate. BA will give suppliers some notice shortly with slowdown or suspension likely until it has better visibility of FAA certification," von Rumohr said. Previously Boeing was aiming to ramp 737 Max production to 57 aircraft per month by the end of 2020. Von Rumohr said he expects Boeing will temper that production goal soon "to assure liquidating MAX inventory in a timely manner." – CNBC's Michael Bloom contributed to this report.

Boeing 737 MAX airplanes are parked at Grant County International Airport October 23, 2019 in Moses Lake, Washington.

David Ryder | Getty Images News | Getty Images

Cowen on Wednesday lowered its rating of Boeing stock to market perform from outperform, citing the extended 737 Max crisis for piling on the company's costs and delaying production.

The note did not mention the crash of a Boeing 737-800 in Iran that killed all 176 people on board. That aircraft was not a 737 Max model and operator Ukraine International Airlines said the cause of the crash was not immediately known.

Cowen's downgrade comes a few weeks after Boeing replaced CEO Dennis Muilenburg with David Calhoun, a person who Cowen said is "a good choice for CEO." However, the firm said it believes Boeing's "turnaround will take time," as the company is working to recertify its 737 Max aircraft. Two 737 Max crashes within five months killed 346 people, resulting in the aircraft being grounded worldwide.

Boeing shares slipped 1.8% in trading Wednesday to close at $331.37.