The Mix Matters For Boeing's 787, Deutsche Bank Says

In a report published Wednesday, Deutsche Bank analyst Myles Walton reiterated a Buy rating and $175 price target on Boeing Co (NYSE: BA). The analyst expressed optimism regarding the company's decision to undertake a mix shift to the 787 -9/-10 over the next five years.

"The mix shift builds (but doesn't close) the case for $50M in gross profit per 787 at the turn of the decade (vs. losing $20M today)," Walton stated.

At present, the company incurs losses of more that $20 million in cash per copy for each 787. This is of course an improvement compared to the almost $75 million in cash losses being incurred per aircraft in 2013 and the $35 million cash losses per aircraft during 2014.

According to the Deutche Bank report, "An important inflection is upon the program, however, as it crosses break-even (we think on both the 787-8 and -9) in the next few quarters. Moreover, we see the dramatic (positive) mix shift ahead as the 90 percent mix of 787-8s previously delivered moves to less than 20 percent of the delivery mix going forward."

With the delivery of 787-9s and 787-10s through the end of the current decade, Boeing has the opportunity to grow its cash margins for the 787 close to those of mature production programs of the 777 and 737 by the end of the decade.

"At midnight, the charter for the Export-Import bank will expire and with the expiration will come questions on what it means for Boeing. We think the absence of the bank would result in tighter filters by Boeing on their order book (customer quality, size, duration, etc); however, we don't think it derails the cash flow growth story," Walton added.