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Improved confidence in the supply chain’s ability to support strong demand in the aircraft industry is improving sentiment for stocks like Boeing (NYSE:BA).
Ken Herbert, aerospace and defense analyst at RBC Capital Markets, has raised his price target for the stock to $275, and gave credit to the growing demand environment and the improving sentiment around the stock.
RBC Capital Markets is forecasting about $5.5B of free cash flow for the company in 2024, and up to $8.5B in 2025.
Boeing had about $3.5–4B this year.
“There aren’t a lot of other large caps that provide this exposure in commercial aerospace,” said Herbert. “So, there is some scarcity around that.”
He also said that the stock (BA) has been "tradable but not investable over the last few years, as we’ve dealt with supply chain issues and other disruptions.”
Better visibility in the free cash flow growth will show multiples expansion that justifies the higher price target, he said, “based on the fact that it’s relatively under-owned, compared to other large-cap aerospace names.”
Those names include Lockheed Martin (LMT), Northrop Grumman (NOC), Kratos Defense and Security Solutions (KTOS), RTX Corporation (RTX), and General Dynamics Corp. (GD).
When it comes to demand from China, delays in deliveries have been a headwind for the company. There is still inventory — 250 of the 737Max aircraft and about 100 of the 787 legacy aircraft — built for China.
“We’d expect a lot of those to ultimately get remarked…and end up with other airlines,” he said.
If China resumes deliveries, it would be income on top of the already projected numbers, he added. “But we’ve reached a point where we don’t necessarily need to see China come back in a meaningful way to get to the free cash flow [estimates].”