Long-Time Boeing Seller Just Upgraded The Stock

Buckingham Research’s Richard Safran upgraded the rating for Boeing Co (NYSE: BA) from Underperform to Neutral, while reducing the price target from $108 to $102. He cited the absence of near-term negative catalysts as the reason for the upgrade.

There already seems to be significant negative sentiment on account of the threat of an SEC investigation into Boeing’s program accounting. Since the company’s program accounting is complex, an SEC probe could take some time to complete. The potential risks from an SEC probe “are well understood,” analyst Richard Safran said, while adding that it could remain an overhang on shares.

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Safran believes the consensus expectations are optimistic, reflecting a 10 percent FCF yield in 2016, 12 percent in 2017 and even higher after that. He expects Boeing to miss expectations after 2016 due to lower-than-anticipated production rates and a larger-than-expected impact from new development programs on the company’s working capital.

The EPS estimate for 2016 has been reduced from $9.00 to $8.52. The price target reduction reflects a shift in valuation to 2017E, which is at $9.30. “Our lower price target and valuation multiple reflects the additional downside risk to our FCF and EPS estimates,” the analyst wrote.