Boeing (NYSE:BA) agreed to plead guilty to a criminal fraud charge related to the two tragic crashes of its 737 Max jetliners, which resulted in 346 fatalities. The decision could adversely impact Boeing’s business and stock price.
This follows federal prosecutors giving Boeing the option last week to either plead guilty and pay a fine or go to trial.
Legal and Financial Repercussions
The plea deal, pending a federal judge’s approval, requires Boeing to pay an additional $243.6 million fine. Moreover, an independent monitor will oversee Boeing’s safety and quality procedures for three years.
The deal also requires Boeing to invest at least $455 million in its compliance and safety programs.
Impact on Boeing’s Business Operations
The guilty plea could present significant challenges for Boeing, especially for its defense contracting business. According to the Wall Street Journal, the move would classify Boeing as a felon, potentially increasing the risk of suspension from defense contracts.
With Boeing securing $22.8 billion in defense department contracts last year, this risk seems significant. Boeing will likely seek a waiver to avoid these consequences.
Boeing Stock Performance and Risks
Boeing’s stock has dropped over 29% year-to-date. This reflects ongoing quality issues and production slowdowns after a notable incident involving an Alaska Airlines (NYSE:ALK) flight in January. These problems have severely affected Boeing’s production and delivery schedules, which in turn have affected its financials.
TipRanks’ Risk Analysis tool shows that Boeing faces higher risks than industry averages. It’s worth noting that production risks make up 26.9% of Boeing’s total risks, above the industry average of 18.5%. Boeing also faces elevated risks in the “legal and regulatory” and “ability to sell” categories, indicating broader challenges beyond production issues.
Is Boeing Stock a Buy or Hold?
Boeing stock has underperformed the broader markets as it navigates the legal and operational hurdles. BA stock has a Moderate Buy consensus rating on TipRanks, reflecting 16 Buys, five Holds, and two Sell recommendations.
The analyst’s average price target for BA stock is $213.21, implying 15.35% upside potential from current levels.
