Bank of America: production accelerating but delivery delayed maintains a "neutral" rating for Boeing Company (BA.US)

Bank of America released a research report stating that Boeing Company (BA.US) had delays in aircraft deliveries in April, but showed progress in production. In this context, Bank of America maintains a "neutral" rating for Boeing Company and gives a target price of $185. Bank of America pointed out that the delivery progress of Boeing Company's 737 in April was slow. According to data from research company Aero Analysis Partners (AAP), only 16 737s were delivered in April, which is lower than the expected number and below the 22 delivered in the same period last month. Despite uncertainties in aircraft deliveries to China due to tariff issues, Bank of America believes that Boeing Company will have no difficulty in reallocating these aircraft to other airlines in need of additional capacity, with Indian airlines being a possible target. Despite delivery delays, there was significant progress in production. In terms of production, the performance in April exceeded AAP's expectations, with 24 737s completed so far this month, close to the average of about 27 in the first quarter of the past 25 years. For the second quarter, AAP expects 28 new aircraft to be put into operation each month, reflecting a mild growth trend. Furthermore, AAP believes that Boeing Company may reach a production rate of 38 aircraft in the second half of the year, although maintaining stability at this level may pose challenges. In addition, according to AAP's data, there is increasing momentum in the delivery of the 787 project, with five aircraft completed so far this month and an additional three expected. This will result in the highest monthly delivery total for the project as Boeing Company plans to deliver aircraft left over from previous months. In terms of production, two aircraft have already rolled out. AAP expects four new aircraft to be put into use in April, consistent with last month but lower than the five announced by Boeing Company. Based on a standardized FCF of $8 per share and a relative value of 1.1 times the S&P 500 index (slightly above the historical average of 1 standard deviation), Bank of America gives Boeing Company a target price of $185. In Bank of America's view, the slightly above historical average P/E ratio reflects the upside risk of FCF, strong demand for commercial aircraft, opportunities in defense projects, and inadequate dividends. Upside risks include potential involvement of aggressive shareholders, better-than-expected cash margins for the 787 and/or MAX projects, the company's ability to maintain the 777 delivery rate during the 777X transition period, and lower-than-expected future development costs for the 777X, single-aisle, and mid-market aircraft. Downside risks include intense competition in the labor market for talent, making new product development more challenging. Execution risks for new and production projects (737MAX, 777X, KC-46) could lead to cost overruns and profit contraction. Changes in trade policies could have an impact. A significant increase in oil prices above $100 per barrel could negatively affect aircraft demand. The downturn in commercial aviation due to external factors could have an adverse impact on financial performance. The rapid appreciation of the US dollar, given that aircraft are priced in dollars, could significantly affect order activities. Additionally, a strong US dollar could enhance the advantage of European competitors. Repairs to the 787 aircraft may take longer than expected. Reputational risks from recent events could lead to a decrease in incremental orders. Asset sales may not be realized as planned.