How Analysts Rate Boeing After Earnings

Many analysts think that the report will not cause Boeing to lose altitude. Ken Herbert at Canaccord Genuity, for example, raised his price target on the stock from $160 to $165. Herbert said:

Margins were better than expected in each segment, while revenues were soft in Boeing Defense, specifically. The one primary blemish on the quarter was the $486M in negative [free cash flow], as compared to a positive $615M in Q1/14.

Sterne Agee’s analyst has a Buy rating on the stock, along with the highest price target among the 19 listed firms following the stock: $196. Sterne Agee’s analyst is not concerned by Wednesday’s hiccup:

We reiterate our view that the Free Cash Flow profile of BA should remain robust through peak production levels in 2018. Yesterday’s reiteration of the 2015 outlook for >$9.0 billion in cash from operations despite the soft start to cash generation in 1Q15 gives us confidence in robust 2H15 for [free cash flow]. … [T]he strong visibility and robust backlog continue to make the BA stock a must own in 2015 among mega large-cap industrials. Buy BA on current weakness.

Wells Fargo reiterated its Outperform rating on Boeing stock and raised its valuation range from $153 to $157 to a new range of $163 to $166, while maintaining its estimates for 2015 and 2016 earnings per share of $8.45 and $9.45, respectively. According to Wells Fargo, “Risks include weak orders/production cuts, delays/cost overruns on new programs, and supply chain disruptions.”

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Bank of America Merrill Lynch maintained a Neutral rating on the stock and a price target of $150. The analysts also focused on free cash flow and customer advances:

The key focus in 1Q15 results were Boeing’s free cash outflow of $486mn due to weak operating cash flow of $88mn. This is the first time that Boeing has recorded negative [free cash flow] in four years. According to Boeing management, timing is the main driver of this weakness and cash is expected to be stronger in 2H15. In our view, free cash flow weakness in 1Q15 highlights Boeing’s dependence on customer advances to print strong [free cash flow] numbers.

One last analysis comes from S&P Capital IQ, which reiterated its Buy rating and $180 price target:

[W]e estimate 20% growth in 2015 on increased revenues from the B737 and B787, increased production rates and increased deliveries. … [Defense, Space & Security] revenue will likely fall 15% in 2015 on the impact of lower overall U.S. defense spending, partly offset by rising international sales.

In an announcement Thursday morning, United Continental Holdings Inc. (NYSE: UAL) finally committed to exchange 10 orders for the 787 Dreamliner for 10 of Boeing’s current 777-300ERs, with delivery beginning in 2016.

This is a plus for Boeing, although United had already given away its production slots for the 787. Any new orders Boeing can get for the current version of the 777 keeps that line producing airplanes until the new 777X is ready to begin service in 2019.

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The downside for Boeing is that it probably has to offer a pretty steep discount to get buyers for the 777. The list price for a 777-300ER is $330 million, but Leeham News & Comment estimates that the usual market price of $150 million to $170 million for one of the planes likely was dropped to around $130 million to $135 million for United.

Boeing’s stock traded down about 0.4% as the noon hour drew to a close Thursday, at $150.57 in a 52-week range of $116.32 to $158.83.