The Boeing Co. (NYSE: BA) has been held back by its woes surrounding the 787 Dreamliner. Amazingly, the stock is still very close to a 52-week high. Now we have one analyst out with a new street-high price target, and the implication is that Boeing could even see a 50% gain over the next two years.
Sterne Agee’s analyst Peter Arment gave a Buy rating on Boeing with a 12-month target price of $120 on the aerospace and defense firm. The prior street-high target, according to Thomson Reuters, is $115 for the stock. Today’s raised price target is based on an increased business cycle visibility and also noted that Boeing is very undervalued.
The report highlights that Boeing’s gross book-to-bill order ratio remains above 1.0, with an average of 700 airliners being ordered in both 2013 and 2014. The firm also projects that spending on research and development is unlikely to spike from new aircraft programs. Another boost is actually that the 787 profitability will go higher due to strong demand.
As far as the 50% upside by 2013, Arment showed that Boeing has traded at 10 to 12 times free cash flows toward the peak in the cycle. This should top $18 billion over the next three years, and that would support a higher valuation, based on Stern Agee’s $12.00 per share free cash flow in 2015.
With our recently updated commercial aircraft forecast coupled our view that BA’s gross order book will be above 1.0x in 2013 and more impressively in 2014, we are raising our 12-month price target on Boeing by $20 to $120 (28% upside from current levels) based on ~10x our 2015E FCF multiple. Longer-term, given the cash flow dynamics with ramping production and improving 787 cost curve, a 50% move in BA shares is achievable before the peak of the cycle in 2015.
Boeing remains a top pick from Stern Agee at the current levels. Today’s new street-high call is not helping the stock price as Boeing is down 0.7% at $93.57, versus a 52-week range of $66.82 to $95.15.