Boeing Is A Strong Investment Opportunity For 2017

Bernstein’s Douglas S. Harned sees Boeing Co BA as a “strong investment opportunity for 2017,” driven primarily by incremental free cash flow through 2020.

Harned maintains an Outperform rating on the company, with a price target of $91.

Upside Drivers

“We are positive on the delivery outlook, particularly the 737. Management view of FCF through 2020 is supported by dividends and buybacks. With 777 rate cut, we see little likelihood of negative surprises in Q4 reporting,” the analyst mentioned.

Boeing has reduced its 777 rates from 8.5 per month to 5 in 2017 and 3.5 in 2018, which Harned believes will establish a floor on the only program that appears to have a bearish outlook.

Free Cash Flow

On the other hand, the company has raised its dividend by 30 percent, while announcing share buyback authorization of $14 billion, which demonstrates management’s confidence in cash flow.

In addition, the analyst noted the “787 has now moved through 500 deliveries, so late delivery penalties tied to early orders should be gone as model mix improves — driving cash margins.”

Boeing’s free cash flow is expected to be driven by rising 787 profits, as well as peaking R&D and capex.

“The 737MAX ramp looks increasingly secure and defense is being supported by new demand,” Harned went on to say, while adding that the appointment of Kevin McAllister as the new CEO was a positive step.

At last check, shares of Boeing were up 0.55 percent at $157.04.