Analyst Ken Herbert at Canaccord Genuity lowered his rating on Boeing Co. (NYSE: BA) Thursday morning from Buy to Hold and also lowered the firm’s price target on the stock from $150 to $135 per share. Boeing’s shares closed at $119.65 on Wednesday.

Essentially Herbert sees incremental risk to Boeing’s free cash flow following the company’s production rate reduction on the 777 and increased interest from airlines in buying used planes rather than spending much more on new, more fuel-efficient models. We recently wrote about the cost of a used 777-200ER.

Canaccord lowered its peak free cash flow estimate, due in 2019, from $15 billion to approximately $12 billion. The firm also maintained its position that Boeing will see a full recovery of deferred costs on the 787 Dreamliner program and that 787 cash flow “represents the primary source [of] cash flow upside through 2020.”

Herbert also noted:

We now model in peak industry deliveries in 2019, and now believe the probability of Airbus and Boeing hitting the 57-60/month rates on the narrow-body aircraft [737, A320] is lower. Moreover, we believe concerns about the commercial cycle will limit multiple expansion for [Boeing] even as deliveries increase in 2017-2019.

Both Boeing and rival Airbus have experienced a sharp drop in airline retirements of older planes. A total of 28 planes have been retired in the past three months, down from 104 planes in the same period a year ago. With fuel prices at current lows, there is less incentive for the airlines to take delivery of new, more fuel-efficient models.

Lease extensions remain very strong, and Canaccord does not foresee a change in that activity in the near term. Herbert specified his reasoning:

We would note specifically that the base case for the increase in narrow-body production rates to 57 and 60, for Boeing and Airbus, respectively, is based on an assumption that retirements return to a higher level, closer to 3% of the active fleet, like the industry saw in 2012-2013. On a trailing twelve month basis, retirements are running at just 1.4% of the active fleet, closer to the long term historical average of 1%-2%.

Regarding the deferred costs on the 787 program Canaccord said:

We continue to assume [Boeing] is able to work down its ~$29B in peak 787 capitalized deferred production expense, but we now assume that increased concern about the program will limit its potential as a positive catalyst.

The firm noted that the consensus opinion is that further deferred costs on the 787 may add about $7.5 billion to the current total. That figure is not priced into the stock, and if it were to prove true, it would be a “significant negative.”

The firm believes that stock buybacks will continue at a rate of approximately $5 billion a year through 2018, and it does not expect “another shoe to drop” related to the pending SEC investigation of Boeing’s program accounting methodology. If, however, a wider investigation were to be initiated, “it goes without saying it would be a significant negative for the stock.”

Canaccord is retaining its 2016 earnings per share estimate of $8.30 while lowering its 2017 estimate slightly to $9.30 per share. The firm expects orders to reach a low in 2017 to 2018 and also believes orders will be down in 2016 for the industry as a whole, with the potential for a further drop in 2017.

Boeing’s stock traded down about 0.2% Thursday morning, at $119.45 in a 52-week range of $102.10 to $155.99. The consensus price target on the stock is $141.00 and the high target is $196.00.

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