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Boeing Co. is reaping the benefits of a post-pandemic recovery in commercial jets and “accelerated” U.S. and international demand for defense aircraft, creating the just right conditions for the aerospace and defense giant.
That’s the view from analysts at BofA Securities, led by Ronald J. Epstein, who on Thursday raised their rating on Boeing
BA,
shares to buy. The analysts also increased their price target on the stock to $300, from $225, representing an upside of about 27% over Thursday share prices.
“While we, along with the broader market, maintain some reservations around execution, it appears as though the worst may [be] behind Boeing,” the BofA analysts said in a note.
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“We are currently in the midst of the post-COVID commercial recovery with passenger demand emerging back to pre-pandemic levels,” they said. “On the defense side, both domestic and international demand continues to accelerate, with investment outlays” at new peaks.
Boeing on Wednesday reported second-quarter earnings that blew Wall Street expectations out of the water, plus said it was increasing production of its 737 and 787 jets. The highlight of the quarter, however, was Boeing’s $2.6 billion free cash flow.
The stock has gained 11% this week, compared with an advance of about 1% for the S&P 500 index
SPX,
Boeing shares are up 24% so far this year, compared with gains of around 19% for the broader index in that same timeframe.
The higher deliveries for the 737 narrow-body aircraft and 787 Dreamliner wide-body jets are likely “to unlock an incremental [$2 billion] in annual FCF by 2026,” the BofA Securities analysts said. That tailwind will likely be partially offset by lower profits from Boeing’s defense business, they said.
The outlook is not without concerns, the analysts said. Execution risk is the main one, particularly on Boeing’s defense and security side, which has struggled to maintain schedules and faced disruptions, they said.
“Nevertheless, the rising tide of commercial demand coupled with stronger deliveries will support growth through the mid-term, with higher volumes at Boeing Global Services also serving as a tailwind,” the analysts said.
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Moreover, demand is strong enough for Boeing to grow further, even if it were to
only maintain its about 40% share of the narrow-body jet market. The Dreamliner is likely to remain the “wide-body of choice, holding onto the lion’s share of the widebody market vs. its competitors,” they said.
Airlines have sought to update their fleets with an eye to increased fuel efficiency and less maintenance costs.
Order books at Boeing and European competitor Aibus SE
AIR,
are stretching into the next decade. Demand is particularly heated for narrow-body planes, which use less fuel but still offer the tiered service airlines rely on for bigger profits, as business and first-class tickets are rarely discounted.
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