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A recent analysis from Jefferies retains a buy rating and a price target of $200 for Boeing (BA 2.71%). The analyst contends that concerns about potential tariffs affecting the company’s operations in China are overstated, noting that China constitutes merely 2% of Boeing’s backlog.
Implications of the $200 Price Target
While this viewpoint carries some weight, the proposed price target may be overly optimistic. A $200 valuation, representing a 37% increase from current stock prices, would elevate Boeing’s market capitalization to nearly $150 billion. Analysts predict the company will achieve $5.3 billion in free cash flow (FCF) by 2026, accompanied by $37 billion in net debt in the same period.
This target translates to a price-to-FCF ratio of 28 by 2026.
Assessing the Potential Value of Boeing Stock
If Boeing meets the analysts’ forecasts, a case could be made for the stock being fairly valued. However, a 28 times FCF multiple for 2026 appears high. In a favorable scenario, Boeing could be ramping up its aircraft production and improving profit margins, while its defense sector may see earnings growth as it navigates through challenging legacy fixed-price contracts.
On the other hand, Boeing’s backlog currently stands at approximately $500 billion, as reported by CEO Kelly Ortberg during a recent earnings call. Thus, the onus is on Boeing to fulfill these orders effectively.
However, there are notable challenges. Not only must Boeing achieve its production goals, but it also needs to prioritize the development of a new aircraft model for the upcoming wave of narrow-body jets. The former CEO had indicated that a new plane would not be available until after 2035, emphasizing the significant time and investment required for such projects. Investors should take into account the cash flow demands associated with this development as they envision Boeing’s financial landscape in 2026.
This consideration becomes even more critical in light of the fact that Asia is the fastest-expanding aviation market, and China’s Comac aircraft are poised to become increasingly competitive in the next generation of narrow-body airplanes.
Lee Samaha has no positions in any of the stocks mentioned. The Motley Fool has no positions in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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