Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Strange as it may seem for a large, "old economy" industrial stock, shares of Boeing (NYSE:BA) have flown 56% higher over the past year -- four times better than the rest of the S&P 500. Of course, at a new and improved stock price of $207.52 (this morning), Boeing stock looks really expensive right now, selling for more than 25.4 times trailing earnings.

But according to investment banker JPMorgan, it's not expensive. This morning, analysts at JPMorgan announced they are upgrading Boeing stock to overweight (i.e., buy). What's more, even if you think Boeing stock looks expensive at $207 and change, JP thinks it can go higher -- as high as $240 a share, in fact. Why?

Here are three things you need to know.

Boeing 737

Everyone loves Boeing's 737 -- and JPMorgan loves Boeing stock. Image source: Getty Images.

1. A long time coming

In making today's upgrade, JPMorgan noted that Boeing hasn't gotten a lot of upgrades this year -- and JP should know. JP itself hasn't been bullish on Boeing stock for nearly a year and a half. Fact is, the last time we heard from JP, it was way back in February 2016, and JP was busy downgrading Boeing to neutral. As StreetInsider.com (requires subscription) reported at the time, JPMorgan had predicted Boeing stock would fall to $120.

Instead, it's gone up -- a lot.

2. Curbed enthusiasm

Selling for nearly twice what the investment banker predicted a little more than a year ago that it would be worth today, it kind of looks like JPMorgan missed the boat on this one. But in its own defense, the analyst points out that it's not alone: All year long, says JP, "active investors have been off the radar when it comes to establishing or adding to large positions."

Could it be that they were frightened of the valuation?

3. Valuing Boeing

At a P/E ratio of 25.4, that would certainly be understandable. Best case, 25.4 times earnings isn't much of a discount to the average valuation of S&P 500 stocks, which currently clocks in at 25.9 times earnings. Worst case, for a stock expected to grow at only 16% annually over the next five years, a 25.4 times earnings valuation gives Boeing stock a PEG ratio of 1.6, and makes it, in value investor parlance, 60% overpriced.

But here's the thing: While Boeing stock has a high P/E, that metric looks only at GAAP "accounting earnings" drawn from Boeing's income statement. It overlooks the fact that Boeing generates a lot of actual cash profit that never makes it onto the income statement -- but that is easily visible on Boeing's cash flow statement.

Data from S&P Global Market Intelligence show that Boeing generated positive free cash flow (i.e., cash profits) of $9 billion over the past year, which is about 76.5% more cash profit than the company's income statement reflects. Valued on this free cash flow, Boeing stock costs not 25.4 times earnings, but a mere 13.8 times cash profits. Yet Boeing is continuing to grow its business, buoyed by what JPMorgan calls "positive aero fundamentals." (Basically, a booming market for commercial jets.) Given that Boeing is expected to grow 16% annually, 13.8 times FCF really doesn't look like an expensive valuation at all.

Value, with a dividend kicker

That's not even mentioning the fact that with so much cash flowing into its coffers, Boeing is able to afford a very generous dividend for its shareholders. Indeed, even with its stock price as high as it is, Boeing's $5.68 per share in annual dividends translate into a 2.75% dividend yield, which is more generous than what the average S&P 500 stock pays.

Long story short: When JPMorgan says Boeing is cheap, and likely to go higher -- it's probably right about that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.