What happened
Shares of Boeing (BA 0.45%) were up more than 4% as of 10 a.m. ET today. The move comes after a few positive developments from analysts at heavyweight financial institutions. Bank of America's Ron Epstein raised his price target to $190 from $165, Citibank analyst Jason Gursky initiated his coverage with a buy rating, and Wells Fargo analyst Matthew Akers raised his price target to $218 from $185.
The price target hikes and buy recommendations are supported by an improving environment for Boeing Commercial Airplanes (BCA). Investors will be hoping BCA can ramp up production of its 737 and 787 aircraft through 2023. The opportunity to increase profitability and cash flow is significant, given the importance of increased production volumes on margin expansion. Indeed, management aims to generate around $10 billion in free cash flow in the 2025/2026 time frame.
So what
It's never a good idea to slavishly follow analyst targets and recommendations. Moreover, Boeing's mishaps and recent poor execution suggest risk around any assumptions made on its profitability. Whether it's the difficulties of ramping up BCA production in the face of ongoing supply chain challenges or turning around multi-billion dollar cost overruns on fixed-price contracts in its defense business, Boeing faces issues.
Now what
The end market environment is favorable, and Boeing and Airbus continue to own huge moats around their businesses and multi-year backlogs. However, Boeing needs to convince investors its execution is on track, and a few quarters of improving BCA production and no more multi-billion dollar charges in its defense business will do the trick.
