Boeing is poised for gains, accumulate stock now, Citigroup says

Investors should build up their holdings of Boeing’s (NYSE:BA) stock to reap long-term gains as the plane maker works to fix its manufacturing troubles, analysts at Citigroup said in a report Thursday.

Boeing (BA) is poised to benefit from sustained demand for air travel and fuel-efficient planes, and its future earnings will become more predictable as “production quality stabilizes” and returns to growth, the report said.

“Demand for new aircraft remains robust and there are only two major competitors that can fulfill it,” Jason Gursky, analyst at Citigroup, said in reference to Boeing (BA) and European rival Airbus (OTCPK:EADSY) (OTCPK:EADSF). “Execution is thus key, and on this front, Boeing (BA) has stumbled. But we don’t think that’s a permanent state.”

On Monday, Boeing (BA) said Chief Executive Officer Dave Calhoun will quit at the end of the year, a planned departure that’s part of a bigger managerial shake-up.

Airlines and leasing companies that buy planes have vented their frustrations with Boeing (BA), which has grappled with production problems and accidents that led to the temporary grounding in 2019 of its best-selling 737 Max jetliner. In January, a near-catastrophe on a 737 Max flown by Alaska Airlines (ALK) led aviation authorities to investigate Boeing (BA) and limit the output of the narrowbody plane until product-safety issues are resolved.

“Where we fault current management most is its lack of recognition that the pandemic, and the company’s reaction to it, did permanent damage to its work force,” according to Citigroup. “Too many grizzled veterans are gone – those that had ‘moved up the learning curve.’ And there are too many ‘newbies’ closer to the bottom of that curve.”

Aside from commercial planes, Boeing’s (BA) defense business is poised to increase cash flow as the company fulfills its contracts on "troubled programs" with the Pentagon, according to Citigroup.

The bank lowered its 12-month price target on Boeing (BA) to $252 a share from $263 a share previously, based on an estimated multiple of 16.5 times free cash flow for 2026. There’s a longer-term path for Boeing’s (BA) stock to reach $330 a share as cash flow climbs and valuation multiples approach those of industry peers, Citigroup said.