Jefferies maintained a Buy rating and $250 price target on franchise pick Boeing (NYSE:BA) in a note Tuesday, stating that drivers are in place for the company's 787 program margins to get back to high-double digits.
Jefferies analysts explained that the firm toured BA's 787 final assembly and aft fuselage facility in Charleston, SC, and met with Brian West, EVP and CFO, Stan Deal, President and CEO of Boeing Commercial Airplanes, and Lane Ballard, VP and GM of the 787 Program and BA South Carolina.
"The Charleston facility highlights the margin opportunity for Boeing in meeting rising 787 demand which includes higher production rates, improving mix, wind down of rework coupled w/ LT benefit from price," wrote the analysts.
"Cash margins on the 787 in 2018 were high double-digits with runway to get back there," the analysts added. "We est given concessions aircraft through 2025 will generate $17MM of FCF per plane or a 12% margin, but the oppty is thereafter as inventory is depleted to generate $28MM per aircraft or 19% margin which would be above 2019 levels."
Furthermore, the analysts said the 787 program is set to generate $11 billion in revenue in 2023, growing to $14 billion by 2025 or 15% of BA sales, while demand has snapped back, with BA currently sold out through 2026 on the 787, meaning no availability until 2027.