Shares of Boeing (NYSE:BA) rose in pre-market trading on Wednesday after Goldman Sachs (NYSE:GS) added the aviation giant to its 'conviction buy' list. The decision came in light of robust long-term aircraft demand amid global travel growth. Analysts at the firm maintained their target of $258 on Boeing, including it in top industry picks following mixed Q3 results and strong aircraft deliveries.
Goldman Sachs believes that investors are overly focused on near-term disruptions, overlooking long-term fundamentals, thus creating a buying opportunity. Boeing's resolution of manufacturing issues and increased production rates will enhance cash flow through more plane deliveries.
The order book for Boeing expanded by 224 planes in Q3, with significant sales to Ryanair (NASDAQ:RYAAY) and United Airlines (NASDAQ:UAL) under a $40 billion commitment. Ryanair intends to buy up to 300 737 Max jets, with deliveries from 2027-2033. The total order book stands at a record 5,172 planes valued at $58 billion.
Despite facing challenges such as an existing defect in the 737 Max that led to a reduction in its delivery target, Boeing anticipates the 787 production rate to reach five planes per month by year-end. The company reported one profitable quarter over the past three years with deliveries of its popular jet, the 737 Max, slowing to the lowest levels since August. However, it reaffirmed its full-year forecast between $3 billion and $5 billion, having delivered 70 planes in Q3.
The post-pandemic air travel rebound has led to substantial demand and higher pricing for models like the 737 Max and 787 Dreamliner, set to benefit future margins. After aggressively written contracts like the Air Force One project expire, recovery in Boeing's defense business is expected.
In Q3, Boeing reported an adjusted core loss of $3.26 per share, with revenues increasing 13.4% to $18.1 billion, and an adjusted free cash flow of -$310 million. Despite these challenges, shares indicated a Wednesday opening bell price of $188.63.
Goldman Sachs targets a 4% yield on free cash flow for Boeing in 2024, anticipating a recovery in the broader supply chain prepared to ramp up production.
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