Has The 737 Max Put Boeing's Dividend At Risk?

Boeing Co BA shares are down 11% in the past six months as the problems that grounded the 737 Max have proven more difficult to solve than many investors anticipated. Fortunately for Boeing bulls, one analyst said at least patient investors will likely continue to get paid to wait.

The Analyst

Bank of America analyst Ronald Epstein reiterated his Neutral rating and $370 price target for Boeing.

The Thesis

Boeing shares took a big hit last Friday after the FAA reported “concerning” instant messages between two Boeing employees that took place during the original certification of the 737 Max back in 2016. In response, Epstein lowered his price target for Boeing from $400 to $370 on Monday, noting that corporate governance concerns could continue to hurt Boeing’s valuation in the near-term.

On Tuesday, Epstein said a deep dive into Boeing’s balance sheet suggests fears over a cut to the stock’s 2.4% dividend are likely unwarranted.

“With cash generated from other programs in Commercial Aerospace, Defense, and Services as well as debt capacity in the balance sheet, we expect Boeing to preserve its dividend,” Epstein wrote in Tuesday's note.

At the same time, he does expect Boeing to be more conservative with its spending until the 737 Max uncertainty is resolved. Bank of America is anticipating Boeing will put all dividend hikes on the backburner for now and will potentially dial back its buyback program. Epstein said 2019 and 2020 estimated buybacks are already significantly lower than buybacks in the previous five years.

Benzinga’s Take

Boeing’s 2.4% dividend isn’t particularly large, and it’s likely not good enough of a reason on its own to buy the stock. However, given the uncertainty and the price weakness surrounding the 737 Max drama, it’s reassuring to investors that Boeing seemingly has the financial flexibility to continue to maintain its dividend payout commitments for the foreseeable future.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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Photo by Steve Lynes via Wikimedia.