Analysts Like Boeing Before Earnings Despite Unforeseen Costs

Boeing Co (NYSE: BA) is scheduled to release its Q2 earnings before the market open on Wednesday, and investors will be watching the aircraft manufacturer closely. The Street is forecasting $23.51 billion in revenues and earnings per share of $2.06.

Analysts around the Street were generally positive in their assessment of the firm in advance of the quarterly report.

Jefferies analyst Howard Rubel and Canaccord Genuity's Ken Herbert both gave Boeing Buy ratings in reports published July 17 and July 19, respectively. Rubel has a $185 price target, while Herbert's is slightly lower at $165.

Shares closed Tuesday at $145.14.

Unexpected Costs

However, both analysts lowered their EPS estimates in response to a $536 million charge to complete development, certifications, and initial production of the KC-46 Tanker airplane. According to Rubel, the Commercial Airplane unit is set to take a $513 million hit and the Defense unit will lose $322 million.

But Herbert pointed out that the additional costs now will largely eliminate additional near-term financial risk associated with the Tanker program. Furthermore, he said, Boeing doesn't expect to delay the delivery of the first 18 KC-46's, which is slated for 2017.

Plus, according to Herbet, the "unexpected" charge probably wasn't a surprise. He noted that the stock only dipped about 1 percent in response to the news, compared to a 0.35 percent decrease in the S&P Aerospace and Defense Index. He said that the company likely announced the cost spike during Dennis Muilenburg's first quarter as CEO, knowing that most investors would forgive him.

Despite the Tanker charges, Herbert expects the commercial segment to continue to be the key portion of Boeing's business. He was relieved to not see additional costs associated with the 787 or other commercial programs.

The analyst also expects free cash flow to be especially strong in Q2, noting that the figure has improved in the second quarter of each year since 2009. According to the analyst, commercial deliveries have gone up by 9 percent quarter-over-quarter and wide-body deliveries have increased by fully 20 percent.

So approaching Boeing's earnings release, analysts see a strong firm with room for long-term growth.