Morgan Stanley analyst Rajeev Lalwani, reiterated an Overweight rating and $500.00 price target on Boeing (NYSE: BA) after a ~7% drop (~$15B in market cap) on Friday following the “withheld” release of internal exchanges that pointed to struggles with the MCAS in 2016. It is now understood that such exchanges were provided to the DoJ in 1Q19 and believed to be related to a faulty simulator.

Back in 2016 the company’s Chief Technical Pilot highlighted difficulties with its operations ahead of certification. In fact, he was quoted as saying that the system was “running rampant” in tests. These exchanges, while discovered in 1Q19, were turned over to the DoT / FAA last week and prompted a response from the FAA administrator to seek an explanation. These headlines created concerns of management turnover at the CEO / CFO levels as well as extended delays for the 737 MAX return to service, raising the probability of a production halt or cut. These concerns led to notable pressure for Boeing shares.

The analyst offered 3 insights that imply this is a false alarm:

1) Boeing management did in fact release the details of the exchanges to the DoJ earlier in the year (i.e. there was no cover up), consistent with our prior CFO discussions that pointed to diligence in document turnover to relevant agencies, albeit with the DoT / FAA receiving it only recently

2) The exchanges relate to a simulator session, rather than an aircraft or flight, where the equipment was apparently not operating properly

3) Issues around the MCAS to-date have been well documented and acknowledged by the company, with multiple parties (e.g. Southwest Airline’s CEO) noting it has been corrected via upgrades several months ago

For an analyst ratings summary and ratings history on Boeing click here. For more ratings news on Boeing click here.

Shares of Boeing closed at $337.51 yesterday.