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Boeing soars after “buy” rating from Seaport Global

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Yahoo Finance’s Emily McCormick joins Heidi Chung to discuss the latest outlook for Boeing amid the coronavirus pandemic.

Video Transcript

HEIDI CHUNG: Markets again holding onto gains. All three of the major indices are higher with the Dow surging more than 300 points. The best-performing stock in the index is Boeing after Seaport Global Securities initiated the stock with a buy rating with a $277 price target.

We are joined now by our very own Emily McCormick who has all the details on this bullish call. Emily, so what was the analyst there so bullish about when it comes to Boeing?

EMILY MCCORMICK: Absolutely, Heidi. So just taking a look overall at the stock, that company is on track for its sixth consecutive session of gains. With that price target that we got from Seaport Global of $277, that implies another about 35% gain from Friday's close. Although, again, we do have that stock up by 11% in intraday trading today, so already closing that gap between current price levels and that price target.

So taking a look at that call, we had analyst Richard Safran's view that Boeing's free cash flow could peak at more than $18 per share coming out of this pandemic and that that is not yet currently reflected in the share price. He said, quote, "There are risks ahead, but absent another COVID-19 wave, we think the worst is over."

And this is the road map that he really presented. So he said that he believes the aerospace industry as a whole is currently in late cycle with aircraft orders having declined and multiples having been compressed across stocks in this industry. But coming out of this, aerospace will move into early cycle during which investors will then start discounting the future or midcycle into Boeing's stock. And at that point, we'll see price to free cash flow multiples expand to about 15 to 17 times, and that's greater than the about 9 times that they're currently trading at, according to Safran.

He also noted quote, "despite Boeing being a light-cycle industrial, history shows that it generally outperforms early-cycle industrials in an economic recovery," adding that the catalyst driving shares higher it will be order flow as traffic growth and orders increase and as investors gain confidence in fiscal '23 when multiples will likely expand.

So really a bullish call here for Boeing. Right now we have the Street's consensus view about neutral on the stock based on Bloomberg data. But again, just looking at the data we've gotten from the TSA, also from American Airlines pointing to the pickup in commercial airline traffic and passengers coming back and that demand coming back online, that's one of the big reasons that we've seen the aerospace industry as a whole moving higher the past couple of sessions and, again, the basis for this bullish call today. Heidi.

HEIDI CHUNG: Emily, certainly some good news for beaten-down Boeing. But again, this company has had some serious issues. And, in an attempt to preserve some cash, last week we learned that the company was planning to let go a lot of its workforce. Do we have any updates on what the company is planning in terms of layoffs?

EMILY MCCORMICK: Well, just looking at Boeing overall, if we think about that announcement last week, they did say that that would be one of likely multiple rounds of layoffs, so potentially something to continue watching down the line. But Boeing has reiterated that it would be a smaller, leaner company for the foreseeable future as it plans for the pickup-- the slow pickup, really, in the airline demand and on the customer side.

So, again, that's mostly impacting the commercial aircraft business. Many analysts have been more bullish on the defense business and, really, some of the partnerships they've had on that front. So sort of a multipronged approach to really looking at Boeing right now, but the past couple of days, Wall Street really has been seeing a pickup in the stock and that company paring some of its year-to-date losses. Heidi.

HEIDI CHUNG: All right, Emily, thanks for that breakdown with Boeing.