Boeing Earnings Have Upside: Sterne Agee CRT Sees Buybacks, More Orders Coming

Despite expectations of softer cash flow during 1Q16, Boeing Co BA has been retiring stock aggressively through its large share buyback initiative.

Peter Arment of Sterne Agee CRT has maintained a Buy rating on the company, with a price target of $196.

1Q16 Expectations

In line with the estimates, the company delivered 176 aircraft in 1Q16, with the 787 deliveries also on track to meeting the estimate of a total of 30 aircraft.

Cash flow is, however, expected to weaken, with consensus expectations for cash from operations for 1Q16 at a loss of $123 million.

Arment expects Boeing to continue with aggressive share buybacks and to reiterate its cash flow guidance for 2016 at $10 billion.

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“We continue to show greater than $7.4 billion in FCF in 2016, $8.5+ billion in 2017, $9.7+ billion in 2018 resulting in $25 billion in FCF during the next three years coupled with a current $11.3 billion in cash on hand,” Arment stated.

Estimates Revised

The analyst expects Boeing Commercial Aircraft to report revenues of $14.5 billion in 1Q16, with operating income of $1.37 billion and operating margin of 9.4 percent.

The 1Q16 and 2016 EPS estimates have been raised by $0.07 to $1.88 and by $0.05 to $8.60, respectively, “reflecting the modest change in aircraft delivery mix and impact from buybacks.”

The deferred 787 production balance is expected to grow by $200 million in 1Q16, sequentially flat and in line with the guidance.