Aerospace & Defense

Analyst Puts Boeing on the Path to $200

Boeing Co. (NYSE: BA) recently released its fourth-quarter financial results, which came over the top of estimates in late January. As a result, Sterne Agee has taken another look at the company and revised its call. The firm gave Boeing a Buy rating, with a price target of $196. In the opinion of Sterne Agee, Boeing is on its way to $200 per share.

Sterne Agee raise its price target on the stock by $32, and that $196 represents a 30% upside from current levels. This reflects the firm’s view that the free cash flow (FCF) dynamic remains underappreciated.

Overall, it estimates that Boeing will generate $23 billion in FCF during the 2015 to 2017 period, with roughly $16 billion available for buybacks after dividends, which would enable a 15% reduction in the shares outstanding. For FCF, Boeing is forecast to generate $6.3 billion in 2015, $8.0 billion in 2016 and $8.7 billion in 2017. This results in 15% compound average growth rate (CAGR).

The firm believes that the company’s healthy visibility and robust backlog will continue to make the stock a must own in 2015.

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Sterne Agee detailed in its call why Boeing deserves its premium:

We can further argue for premium to this basket of companies given: Boeing’s aggressive capital deployment; increasingly more comfortable in securing more 777 classic orders and filling in the production gap; book-to-bill at Boeing Commercial Airplanes (BCA) will again be 1.0x in 2015; unit costs on the 787 program continue to trend lower excluding investment initiatives, and cash breakeven is still expected in 2015; the collapse in oil prices has not caused any changes in aircraft delivery schedules; and Boeing Defense, Space, and Security (BDS) sales are likely to trough in 2015 given program mix and budget trends. If BA were to garner a similar valuation to other industrials (18x), Boeing could top $200 by early 2016.

The firm believes that Boeing can generate a 30% total return in 2015, based on its FCF forecast and the scarcity value among industrials that can grow FCF at a double-digit rate with much higher visibility than peers for 2015 and 2016. If long-term production rates hold, Boeing could be on a path to becoming a $200 billion market cap company by the end of the decade.

It is also worth noting that this is the highest price target issued by any analyst.

Shares of Boeing rose about 1.1% Friday morning to $155.54. The stock has a consensus analyst price target of $156.70 and a 52-week trading range of $116.32 to $154.24.

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