BofA Securities lowered its price target to $210 from $225 on Boeing(NYSE: BA) stock and maintained its neutral rating on the stock following a presentation by the aviation giant's CFO, Brian West. The presentation took place at, you guessed it, a Bank of America Global Industrials Conference on Wednesday.
Lowered expectations for Boeing stock
The revised price target still represents a 12% premium to the current price, reflecting the stock's underlying value based on Boeing's strong market position, multi-year backlog, and recovering commercial air travel market.
West's presentation indicated a possible change in Boeing's cash flow and debt profile, which BofA Securities noted. The need to enhance manufacturing quality by slowing down airplane production and eliminating traveled work is likely to negatively impact cash flow generation.
There may also be customer penalties due to aircraft delivery delays as Boeing's production ramp won't be as strong as initially anticipated this year.
Boeing's medium-term outlook
The negative factors threaten to push out management's target of $10 billion in free cash flow (FCF) in the 2025 and 2026 timeframe, and West acknowledged, "It's going to take us longer to get there than we planned. It'll be further out in that 2025-2026 window," he said in the presentation.
In addition, Boeing's defense business is also a matter of concern. Back in October, West discussed the contribution that the defense segment would make to the $10 billion in FCF target and said we have a lot of confidence that they will be contributing to that $10 billion, maybe not quite as much, but they're going to be positive."
In addition, buying Spirit AeroSystems(NYSE: SPR) will increase debt (Boeing's consolidated debt currently stands at $52.3 billion) and possibly create increased cash flow challenges. Spirit has had outflows in recent years, and there's a need to improve manufacturing quality, too.
I think the BofA analyst has good reason to lower the price target following the presentation, and a "neutral" rating is fair.
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