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Boeing: A Solid Recovery Play

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It’s no secret, the aviation industry has been one of the pandemic’s biggest casualties. For Boeing (BA), Covid-19 has only further piled on the pressure. Even without taking the coronavirus into account, over the past couple of years, the company has had to deal with the fallout of the 737 MAX crashes.

However, Canaccord analyst Ken Herbert sees enough reasons why the outlook for Boeing is decidedly positive.

“While we continue to see risk to the Boeing 737 MAX production schedule, we believe the combination of a recovery in passenger traffic, higher fuel prices, and improved airline financial health will support BA’s MAX delivery plans,” the 5-star analyst said. “Moreover, we believe Q4/20 represented the order trough for Boeing, and we believe the outlook for improved airplane orders in H2/21 will be a positive catalyst. While the stock has had a significant move off its March 2020 lows, we see further upside.”

After several quarters of depressed activity, Herbert counts the uptick in air travel and federal stimulus as reasons why BA should experience an increase in orders.

As the analyst notes, risks to the MAX production schedule remain, but the deliveries should go some way in helping Boeing “largely work down its ~400 MAX inventory by 2022.”

While Herbert views Boeing’s production target for 31 MAXes a month by early 2022 as “unrealistic,” and anticipates the company will lower its planned MAX production rates, he believes “most of this pressure will hit the supply chain.”

Execution on the MAX (and 787) “inventory work-downs,” are the two most significant elements for the A&D giant’s 2021 FCF (free cash flow) outlook.

Herbert thinks investors are willing to look beyond the next couple of years, toward a more “normal” FCF scenario. That said, much better FCF in 2021, followed by “positive cash generation in 2022,” have the potential to act as positive catalysts for the stock.

All in all, the analyst thinks BA “will continue to benefit from its appeal as a re-opening and economic recovery play, as well as strong execution in 2021-2022.”

To this end, Herbert rates BA shares a Buy along with a $275 price target. This puts the upside potential at ~23%. (To watch Herbert’s track record, click here)

Amongst Herbert’s colleagues, BA has decent support although not everyone is on board. BA's Moderate Buy consensus rating is based on 10 Buys, 7 Holds and 3 Sells. The $239.95 average price target suggests upside of 7% over the next 12 months. (See BA stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.