Bearish analysts throw in the towel on booming Boeing shares

Published Thu, Jul 27 201711:38 AM EDT

Though Wall Street research firms seldom highlight their incorrect calls, RBC Capital conceded in a note to clients that its previous underperform rating on Boeing shares was a mistake. The firm raised its rating on the aircraft maker's stock to sector perform from underperform. "Our negative call on Boeing was predicated on margin headwinds in Boeing Commercial Airplanes," wrote analyst Matthew McConnell. "We are capitulating on our Underperform rating as Boeing executes well on cash flow, Boeing Commercial margins, and the production ramp on the 737." Boeing's performance this year is the best in the Dow Jones industrial average, rising 36 percent before second quarter earnings earlier this week. Since Wednesday's earnings beat, the stock jumped an additional 13 percent . and it's up 54 percent since January. The Dow is up 10 percent this year. Boeing shares rose 3 percent in early trading Thursday morning. McConnell raised the firm's 12-month price target to $235 from $146, representing less than 1 percent upside from Wednesday's close. The RBC report noted that its prior underperform rating was largely based on expectations of "Production Maturity" headwinds, referring to the pressure on margins when Boeing introduces new airplane models. The company recently launched its latest upgrade to its 737 planes, known as the 737 MAX. According to the analyst, Boeing has historically performed better when revenue is weighted toward planes that have been in production for many years rather than newer models, which incur transition costs. Boeing CEO Dennis Muilenburg offered listeners several reasons on why the company is soaring above the market during Wednesday's conference call to discuss earnings. "Demand is more geographically diverse and balanced across the globe," he said. "It is more diverse and balanced across the spectrum of customer business models as well." The CEO also recognized the increased demand in defense and space aerospace technology such as helicopters, fighter jets and tiltrotor aircraft. In fiscal year 2017, "Congress added seven AH-64 Apaches, 12 F-18 Super Hornets, and four V-22 Ospreys, as well as a significant funding increase for Space Launch System," said Muilenburg. "With growing markets and opportunities ahead, our team remains intensely focused on growth, innovation, and accelerating productivity improvements to fuel investments in our future." On Thursday, Wall Street research firm Credit Suisse raised its Boeing 12-month price target to $300 from $200, representing 29 percent upside from Wednesday's close.

Boeing Dreamliner 787 planes sit on the production line at the company's final assembly facility in North Charleston, S.C.

Travis Dove | Bloomberg | Getty Images

Though Wall Street research firms seldom highlight their incorrect calls, RBC Capital conceded in a note to clients that its previous underperform rating on Boeing shares was a mistake.

The firm raised its rating on the aircraft maker's stock to sector perform from underperform.

"Our negative call on Boeing was predicated on margin headwinds in Boeing Commercial Airplanes," wrote analyst Matthew McConnell. "We are capitulating on our Underperform rating as Boeing executes well on cash flow, Boeing Commercial margins, and the production ramp on the 737."

Boeing's performance this year is the best in the Dow Jones industrial average, rising 36 percent before second quarter earnings earlier this week. Since Wednesday's earnings beat, the stock jumped an additional 13 percent. and it's up 54 percent since January. The Dow is up 10 percent this year.

Boeing shares rose 3 percent in early trading Thursday morning.