“While we expect Boeing to emerge from the 737 Max crisis and begin generating cash in 2022, the severity of the impact from Covid-19 on aircraft demand is unclear, and we await more confidence in the path ahead,” Seifman wrote in in a report.
Boeing recently traded at $229.60, up 0.43%, but has stumbled 30% year to date amid the air travel plunge caused by the coronavirus pandemic.
“Our December 2021 price target of $265 is based on an 18x multiple on our 2023 free-cash-flow per-share estimate of about 16 and discounted back one year,” Seifman wrote. “This multiple is above where BA has traded historically, but we think this can be supported by the long term recovery for aerospace demand that will follow the Covid-19 crisis.”
Downside risks to Seifman’s target include “a long-term impairment of the 737 MAX’s program’s cash flow profile,” he wrote. “Further cuts to 787 production and delays to the 777X entry into service could also result in lower cash flow estimates in our model. Also, escalation of global trade tensions could weigh on investors’ perception of underlying aerospace fundamentals.”
Potential upside impetus could come from “a lesser-than-expected impact from Covid-19 and potential aircraft orders that instill confidence in the aerospace demand,” Seifman said.
Meanwhile, Boeing has expanded inspections of its newly-produced 787 Dreamliners after finding a previously disclosed manufacturing defect in sections of the jet where the issue hadn't been initially detected.