Shares of Boeing (BA) hit some turbulence entering 2014, but the stock should resume its climb, according to Sterne Agee.
Sterne Agee’s Peter Arment and team explain why the think investors should “buy [Boeing] on this pullback:”
We reiterate our price target for [Boeing] of $164 (~13x 2015 FCF per share), based on very favorable FCF over the next several years. With the long-term cash story still intact, despite 2014 headwinds, we believe a 13x-15x multiple range on 2015 estimates is very reasonable given peak cash generation is still two years later in 2017. Historically, [Boeing] has been able to support a 10-12x peak FCF multiple during production upcycles. We believe this again will occur as BCA ramps production through mid decade. Additionally, with ~5,100 aircraft in backlog [Boeing] has tremendous visibility and flexibility within the production skyline that should result in sustained healthy valuation given the longevity of this aerospace cycle. We do not believe there is a production bubble given the replacement requirements and the impact of elevated fuel prices driving airlines globally to operate fuel-efficient fleets. While the [Boeing] stock was up 80% in 2013, we expect [Boeing] to recover from this current weakness in the near term as investors continue to put money to work in a mega-cap industrial with significant visibility and commencing harvest mode of the major aircraft investment cycle from 2004 to 2011.
Shares of Boeing have gained 1.9% to $127.89 at 2:07 p.m. today, but are still off 6.3% so far this year. Shares of Airbus (EADSY) have dropped 5.4% this year after rising 1.3% to $18.19 today, while Embraer’s (ERJ) 0.7% rise today puts it up 11% in 2014.
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