The Zhitong Finance App learned that Citigroup said in a report on Thursday that investors should increase their holdings of Boeing (BA.US) shares in order to obtain long-term benefits after the aircraft manufacturer resolves its production problems. The report notes that Boeing is expected to benefit from continued demand for air travel and demand for energy-efficient aircraft, and its future earnings will become more predictable as “production quality stabilizes” and growth resumes.

Citigroup lowered Boeing's 12-month stock price target from $263 per share to $252 per share. This valuation is based on an estimate of 16.5 times the 2026 free cash flow. Citigroup said that as cash flow rises and valuation multiples approach industry peers, there is a long-term path for Boeing's stock price to reach 330 US dollars/share.

Referring to Boeing and its European competitor Airbus, Citigroup analyst Jason Gerski said, “Demand for new aircraft remains strong, and only two major competitors can meet this demand. Therefore, execution is the key, and at this point, Boeing has experienced setbacks. But we don't think it's a permanent state.”

According to information, Boeing's production and safety issues have caused its customers, including airlines and aircraft leasing companies, to be disappointed and frustrated with Boeing. Among them, the temporary grounding of the 737 Max airliner in 2019 and the recent dangerous situation of the 737 Max aircraft experienced by Alaska Airlines (ALK.US) prompted aviation authorities to investigate Boeing and limited the production of this narrow-body aircraft until product safety issues are resolved.

It is worth mentioning that after the above safety incident occurred, Boeing CEO Dave Calhoun (Dave Calhoun) said that due to product safety issues leading to stricter scrutiny, the aircraft manufacturer will be restructuring management, and he plans to step down as CEO at the end of this year.

Additionally, Stan Deal (Stan Deal), president and CEO of Boeing Civil Aircraft Group, will retire, and Stephanie Pope (Stephanie Pope) will lead related businesses, effective from now on.

In response, Citigroup also sees these issues as key issues that Boeing management needs to resolve. These issues are not only related to Boeing's product reputation and customer relationships, but also directly affect the company's financial performance and stock price performance.

Citigroup stated in the report: “Our biggest complaint with current management is that they are unaware of the pandemic and the company's response to the pandemic, which has caused permanent damage to their workforce. Because too many experienced Boeing veterans have left, and at the same time, too many new employees have joined, and these new employees are in a lower position on the learning curve. This situation could have a negative impact on Boeing's operational efficiency and product quality.”

Finally, Citi also mentioned that in addition to commercial aircraft, Boeing's defense business is expected to increase cash flow because the company is fulfilling a “problem project” contract with the Pentagon. Despite the problems with these projects, Boeing is still working to complete these contracts, which will help increase the company's cash flow and may also contribute to its long-term financial stability and stock price performance.

However, a few days ago, people familiar with the matter revealed that Boeing is considering selling at least two of its defense, space, and security businesses to strengthen its balance sheet while addressing security issues.

In contrast, Moody's Investors Service believes that Boeing will not be able to deliver the 737 narrowbody aircraft within a reasonable time frame, thereby significantly increasing its free cash flow and repaying debts. The agency has put Boeing's Baa2 Advanced Unsecured Rating and Prime-2 Short-Term Rating on the downgrade watch list.

Similarly, Wells Fargo analysts believe Boeing is at greater risk in meeting aircraft delivery targets because US regulators reviewed its factory after a recent air emergency with the Boeing 737 Max 9 jet. The bank downgraded the Boeing level from “overholding” to “holding and watching” and lowered the target price from $280 to $225.