One Wall Street analyst thinks Boeing shares will reach $119. Is it a sale?

Wells Fargo analyst Matthew Akers shocked the market this week when he lowered his price target Boeing (BA -1.62%) to $119 (down from $185) and cut its rating to underweight from equal weight. The new target represents a 26% discount from the current price.

Should investors take Akers’ update as valid and consider selling the stock?

Boeing gets a downgrade

A review of Akers’ report suggests his reasoning is sound and there are serious questions about Boeing’s free cash flow (FCF). The company ended the second quarter with $57.9 billion in consolidated debt and just $12.6 billion in cash and marketable securities.

Moreover, Boeing’s management has already told investors that this will be a cash-burning year, and Wall Street has a cash outflow estimate of $7.6 billion. Plus, there’s no shortage of potential cash flow leaks. Its defense business generates continuous losses, the acquisition of the fuselage supplier Spirit AeroSystems could lead to investment in that company, a high-profile employee contract negotiation may lead to cost increases, and in the long term, Boeing will also need cash to begin financing a new aircraft development program.

As Akers notes, a new share issue (raising funds while diluting existing shares) is a possibility.

What does it mean for Boeing investors?

The bearish case is strong, but throwing in the towel might be premature. Wall Street expects $8 billion in FCF, $10.8 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) and $31.3 billion in net debt in 2026.

That would put Boeing at a generally acceptable net debt-to-EBITDA multiple of less than 3 and make it easier for Boeing to raise debt than sell equity, provided it needs the cash.

Based on market expectations, Boeing can mess around without diluting existing stock. That said, a few quarters of improvement in commercial jet delivery rates and the avoidance of significant charges with defense contracts would go a long way toward restoring confidence in Boeing’s ability to meet market expectations.