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Boeing shares upgraded by Morgan Stanley: Analyst predicts 30% rally on strong airplane sales

Key Points
  • Boeing upgraded to overweight from equal weight by Morgan Stanley.
  • "Barring a downturn, the resilience of the EPS and FCF profile should remain in place within Commercial Aerospace, which is supported by airline profits and air traffic holding steady following the decline in oil," analyst Rajeev Lalwani says in a note.
An employee works on the nose of a Boeing airplane at the company's facility in Everett, Washington.
Mike Kane | Bloomberg | Getty Images

Boeing could have a major surge in the next 12 months on the back of strong commercial airplane sales, according to an analyst at Morgan Stanley.

Analyst Rajeev Lalwani upgraded Boeing shares to overweight from equal weight and hiked his price target to $450, implying a 30.9 percent upside. Boeing shares rose 2.55 percent to $352.61 on Thursday.

"Barring a downturn, the resilience of the EPS and FCF profile should remain in place within Commercial Aerospace, which is supported by airline profits and air traffic holding steady following the decline in oil," Lalwani said in a note Thursday. "In addition, we see foresee compounding growth coming from buybacks, production hikes, and margin improvement (15-20%), all from a management that has proven to be best-in-class."

Boeing shares are up more than 8 percent to start off 2019 after a downbeat close to last year. The aerospace giant's stock fell 13.3 percent in the fourth quarter of 2018 amid growing worries over U.S.-China trade relations. The ongoing negotiations have impacted the stock for nearly a year, given the company's large exposure to overseas markets.

Nonetheless, that pullback late last year has created a buying opportunity, Lalwani notes. "Shares are down ~15% from highs, creating a favorable Bull-Bear skew alongside offering a FCF yield of ~10% on our 2020E."

Charles Minervino, an analyst at Susquehanna, echoed Lalwani's thoughts, initiating coverage of Boeing with a positive rating and a $388 price target.

"We believe the commercial airplane market is still in an order upcycle, with customers needing to replace aging fleets while catering to growing travel demand," Minervino said in a note Wednesday.

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