Boeing (NYSE:BA) shares rose over 1% in early New York trading on Wednesday after Goldman Sachs analysts added the stock to their flagship ‘US Conviction List - Directors’ Cut’, which consists of the most differentiated fundamental Buy-rated names across the broker’s U.S. research coverage.
Following a 25% decline from its highs in June at the air show, and with the stock currently trading at a “sub-10X mid-cycle free cash flow,” analysts suggest that investors appear to be more preoccupied with short-term disruptions rather than focusing on the long-term fundamentals and normalized free cash flow.
This perspective leads to the belief that there is a buying opportunity in “this domestic half of the global aircraft manufacturing duopoly.”
“Air travel and aircraft demand remain strong, driven by growth and upgrade needs, and generating several years of backlog for Boeing. This strong demand has also resulted in substantially higher pricing for BA, which should flow to margins in the future,” analysts wrote in a client note.
The analysts also noted there are fewer and fewer production challenges for Boeing, while defense margins should improve with time.
“[We remain] more focused on medium-term supply vs. demand in the travel market and with commercial aircraft, whereas the stock price has appeared highly focused on near-term delivery trends despite the long-cycle nature of the business,” the analysts added.
“Channel checks and diligence in the supply chain give [us] confidence that the broader supply chain is now ready to ramp-up, and only a few suppliers have held that back in recent months, such that as soon as their issues are resolved output can take off.”
Goldman has a $258 per share price target on BA stock.