programs and that, “All in, we look at the announcement from two principal angles – consistency in performance and cash flow.”
Deutsche Bank has a Buy rating on the stock and $160 price target. The firm’s Myles Walton and his team said there was no change or impact to estimates from the charges on the 747 and 787 programs. Here is some additional detail: “The 787 program accounting could now likely absorb a decision to not go to rate 14 later in the decade (consistent with our model) without a forward loss charge. Because we don’t use the 787 inventory as a starting point for cash estimates, the charge has no impact on our FCF estimates. (our model assumes BA won’t recoup up to $10B of the deferred inventory through 2021). We had expected the write off of the remainder of the 747 inventory but were only unaware of the timing. With this $1.2B pretax charge ($814M/$1.28 aftertax), the 747 inventory was written off and 19 aircraft were removed from the block. There were no changes to our cash model from the 747 charge.”
Merrill Lynch has an Underperform rating and a $125 price objective on the stock. After lowering estimates for the quarter and the year, the Merrill Lynch team said: “Is buying back stock the best use of cash? At first glance, investors typically view share repurchase as positive. However, considering the cyclicality and capital intensive nature of commercial aerospace, we wonder whether Boeing’s buy-back of a significant amount of stock in the current environment is the best use of cash. Boeing is facing execution issues, as highlighted by the charges recorded today, uncertain global macroeconomic environment, increased political instability, which could in turn hurt global air travel, and the prospect of investing in a new clean sheet Middle of the Market aircraft.”
Using Boeing’s reported after-tax and EPS figures for the charge, we calculate that Boeing’s average diluted share count was 636mn in 2Q16. We note that Boeing’s average diluted share count in 1Q16 was 666mn, but the company ended the quarter at 650mn shares. Assuming a simple average, we estimate that Boeing repurchased 28mn shares in 2Q16, which factors in an ending share count of 622mn. If we assume that Boeing paid an average price of $130 per share in 2Q16, we estimate share repurchase of $3.64bn in 2Q16.
Cash is the common theme here. Two analyst teams see no change in Boeing’s cash flow and the other wonders whether stock buybacks are the best use of the company’s cash. Boeing has forecast cash flow of around $10 billion for 2016, and you can take it to the bank that the company will at least meet that goal.
Earlier this year the company changed the way it pays its bills and at least one supplier, Rockwell Collins, complained on Monday that it has not received second-quarter payments of $30 million to $40 million that Boeing owes it. Boeing has told vendors that it will take 120 days to pay rather than its previous practice of paying in 30 days. That’s certainly one way to keep that cash flow number up there.
Shortly after noon on Tuesday, the stock traded at $133.62, up 0.5% on the day, in a 52-week range of $102.10 to $150.59.