The list of issues hampering Boeing’s (NYSE:BA) progress over the past few years is long and depressing. Following two fatal crashes in 2019, there was the grounding of the 737 MAX. That was followed by the pandemic’s effects and a slower-than-anticipated recertification of the MAX in 2020. As we moved into 2022, this brought with it a continuation of the 787 delivery halt and persistent challenges with the 737 production ramp. As for 2023, up until October, the year was marked by adverse effects from quality issues with the 737.
That’s the background. Meanwhile, shares have underperformed vs. peers over the period, which Deutsche Bank Scott Deuschle says is down to the “negative revisions on FCF (free cash flow), which itself was principally driven by lower commercial aircraft deliveries.”
However, the times are now changing and Deuschle makes the case that if it’s correct to claim that unsatisfactory commercial aircraft deliveries are the fundamental reason for the stock’s lackluster performance, then conversely, improved deliveries should contribute to the shares outperforming.
And there’s evidence to suggest that is the case. Through November 19th, month-to-date, Deuschle has tracked 23 737 deliveries, and that already surpasses the entire delivery haul of October, suggesting the prospect of a month-over-month delivery rate surge of 100%.
But while that only represents 3 weeks of good deliveries, Deuschle believes there’s a “credible case to be made that this improved performance can be sustained.”
Why? The analyst lays out the reasons: “(1) the efficiency of the 737 rework process has improved dramatically now that BA no longer needs to perform x-ray inspections of the aft forward pressure bulkhead; (2) BA is staffed and prepared for higher rates than it is currently producing at; (3) The overall supply chain is improving.”
It all suggests Boeing can potentially reach the upper range of its revised 737 delivery guide, thereby contributing to improved FCF performance in the present quarter. Ultimately, says Deuschle, the equation is a simple one: “better deliveries equals better FCF, and better FCF should drive shares higher.”
And that rationale requires a revision to Deuschle’s model. As such, the analyst upgrades his rating on BA shares from Hold (i.e., Neutral) to Buy, while boosting his price target from $204 to $270. That new figure implies shares have room for gains of ~23% in the year ahead.
Most on the Street support that thesis. Based on 14 Buys vs. 4 Holds, BA stock claims a Strong Buy consensus rating. The average target currently stands at $244.06, making room for returns of 11.5% over the one-year timeframe. (See Boeing stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
