Aerospace manufacturer Boeing (BA) is flying high, racking up a handful of stock upgrades by Wall Street analysts and putting it on the runway to end 2023 in the green.
Stifel Research Analyst Bert Subin — who initiated coverage on Boeing with a "Buy" rating at a $265 per share price target — explains that Boeing's production is picking back up to make up for disruptions on jet deliveries, discussing the company's own stock forecasts.
"Ultimately, the airlines are going to need to produce their own free cash flow to ultimately purchase these aircraft, but as long as the outlook... remains okay, given the age of the average fleet, there is going to be quite a bit of demand to replace one of our aircraft," Subin says to Yahoo Finance.
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JULIE HYMAN: For those who don't follow the industry closely, can you explain to us how-- you talked about these types of companies doing well in mid-cycle, right? So obviously, we've already seen a surge in demand for air travel, commercial air travel, this year. It seems to be slowing at the margins, at least as we look into next year. But sort of where do plane orders sit? How does the timing of plane orders work when we see that kind of surge?
BERT SUBIN: Yeah. It's a great question demand is fantastic. And so the reason for that is, if you look at what happened over 2021, '22, it was just really sort of slow delivery of planes. And you saw the age of the average fleet stretch out quite a bit.
Boeing is out here. You know, I was at the Dubai air show recently. And they booked a ton of new orders there. And those new orders are really going to be fulfilled in the 2030S. So when you think about what Boeing and Airbus are doing today, they're trying to deliver aircraft that were contracted years ago. And so I don't think you can correlate it as much with what you see on the day-to-day side for the airlines.
And just as an aside, I think air travel demand is actually going to be quite healthy next year. You get a little bit of improvement on the corporate side. And then I would imagine you'll get a re-acceleration in leisure as we go into spring and summer. So those things will matter as you think about new orders, because, ultimately, the airlines are going to need to produce their own free cash flow to ultimately purchase these aircraft. But as long as the outlook, I think, remains OK, given the age of the average fleet, there's going to be quite a bit of demand to replace older aircraft.
JOSH LIPTON: And Bert, you look at this stock, it's enjoyed a nice pop here, Bert. I mean, it's up about 25% in the past month. What are the key catalysts that you think are ahead?
BERT SUBIN: Yeah. That is a great question. It really took off pretty quickly. I think what we're really going to be watching is November and December deliveries. October data was pretty weak. Boeing is talking about getting to 375 to 400 roughly on the 737 this year. And so we'll be watching to see where it falls in that range.
But really, I think it's-- as you think out into early '24 and you start seeing announcements perhaps from the supplier cohort about what Boeing and Airbus are asking them to get ready for. And if we start to see those rate breaks, particularly on the 737 Max, go higher, I think, ultimately, that's going to be the catalyst people are looking for.
But as you noted, it was a great November. And there's going to be some people starting to get curious about ultimately what's the next data point. And so I think the next thing to look for is the next couple of weeks, we'll get November deliveries.