Goldman Sachs thinks it's time to sell Boeing.
In a note to clients on Monday, Goldman cut its rating on Boeing from Neutral to Sell, writing that:
With a sustained lower fuel price and pockets of global growth volatility, the demand equation for aircraft could worsen, and Boeing shares are highly correlated to new aircraft orders. New aircraft supply has now doubled from the trough, and growth rates should slow. We think medium-term free cash flow expectations for Boeing are too high, at a time where the 787 deferred target keeps moving higher in large chunks. We also see reach forward loss risk on the 787. We see better opportunity both through-cycle and today, in the higher margin Aerospace supply chain.
In addition to catching up to supply, Goldman notes that the decline in oil prices could change dynamics in the industry, as 50% of current plane deliveries are to replace old aircraft against a rate of 30% historically.
This push came as companies looked for more fuel-efficient planes as oil prices traded near $100 a barrel over the last several years, but with oil prices potentially reaching a new, lower equilibrium, Goldman says Boeing is the most exposed to new aircraft demand risks.
Over the next year, Goldman thinks Boeing investors face four key risks:A tougher aircraft demand environment due to a lower fuel price. A slower rate of growth in production of, and orders for, new large commercial aircraft. Increasing concern over large increases in deferred production for 787 jets. A potentially "less comfortable" medium-term free cash framework.
Now, for investors who have been in Boeing over the last several years, the stock has been a massive winner, as the company pays a dividend and has been buying back tons of it stock with shares rising almost 150% over the last 5 years.
In 2013 alone, Boeing shares rose 83%. But now Goldman thinks this run is over. In pre-market trade on Monday, Boeing shares were down about 1.8%.
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