Suspicious of Boeing After SEC Probe? So is Deutsche Bank

Deutsche Bank analyst Myles Walton was skeptical of Boeing Co

's cash flow generation outlook as the company's stock crash landed after a Bloomberg report revealed an SEC probe into the company's accounting. The story focused on Boeing's long-term profitability projections for the company's 747 and 787 airliners. The company uses a unique form of bookkeeping called program accounting to mask R&D and production costs. Walton reiterated his Buy rating and a $160 price target with a 2016 EPS estimate of $8.56. "We've been mapping the implied profitability on the 787/747 from Boeing's filings for years and have always thought the data overly optimistic," Walton wrote. He also noted that the SEC probe was just another reason for investors to worry following reports of "Boeing's internal communication of headcount reductions, [and] pricing pressures." Boeing is the only company to track its figures using program accounting, but the technique falls under GAAP. Essentially, program accounting involves calculating an average profit margin per unit and multiplying number of units by that average, regardless of the actual profit per unit. This allows the company to overstate profits at the beginning of a reporting period to cover manufacturing costs. Walton is suspicious of Boeing management's forecasts, and even without an SEC probe, he thinks investors can deduce enough from available figures to decide on their plans for the stock. "In our view, investors may disagree with the optimism embedded in the numbers (as we have), but there is enough information for the market to make its own judgement through adequate disclosures," Walton wrote. Walton thinks the market fears the company's cash generation of $11/share is unsustainable, and himself is reluctant to buy into the company's forecast of $25/share by 2020. "The key takeaway remains that we see management assumptions as overly optimistic in both cases, but that is what drives us to use more conservative forecasts in building our cash flow forecast." Boeing shares had stabilized by Friday morning after Thursday's nosedive, down about 1 percent to sit at 107.11.