Boeing Co. (NYSE: BA) has made an incredible run over the past year, with practically all the gain taking place in the past six months. Industrial stocks really picked up after the November election, and this has been a trend ever since. However, one key analyst sees this trend dropping off for Boeing as we continue into 2017.
For a quick look at Boeing’s run: year to date the stock is up 14.5%, while over the past 52-weeks the stock is up 41%.
24/7 Wall St. has included some key highlights of why Morgan Stanley is toning down its expectations for this aircraft manufacturing giant.
Morgan Stanley downgraded Boeing to an Equal Weight rating from Overweight, with a $190 price target. The brokerage firm feels that Boeing’s valuation is high, now that its shares have risen about 40% since mid-2016, while its earnings potential is largely unchanged.
Morgan Stanley rationalized its downgrade by further commenting:
Our thesis on Boeing was that the combination of poor sentiment, a slowing (but not rolling over) aero cycle, and robust FCF made shares compelling. With shares now up 40% from the middle of last year and at an all-time high, the risks now appear more balanced. In addition, we believe it will be difficult for shares to move too far above a peer (or market) multiple, which is where they sit today (18xvs. 16.5x peers and 17x market on 2018E EPS).
The analyst continued:
Given that Boeing has the strongest cash flow profile in A&D per a 7-8% FCF yield (and growing) along with a half a trillion dollar backlog, we view the premium as justified and more than offsetting the cycle risks. And when assessing the risk-reward in shares, as observed in our bull-bear analysis and discussed further below, the upside and downside ranges from a balanced $120 to $250, thus supporting our move to Equal-weight.
Shares of Boeing were last seen at $178.29 on Monday, with a consensus analyst price target of $174.75 and a 52-week trading range of $122.35 to $185.71.