Boeing shares surge as Wells Fargo upgrades stock to ‘outperform’

Wells Fargo upgrade includes 737 and 777, which generate about 55% of the company’s revenues, with the firm expecting improvement

Boeing stock has surged on Monday after analysts at Wells Fargo upgraded the stock to “outperform” from “market perform” with a target price increase to $417. The new valuation represents an 8% increase from Friday’s closing price.

“While we are cautious about long-term valuation, we do see near-term potential upside as 787 delivery resets and 777X remaining unit contribution is seen,” the analysts wrote. “Though 787-10, 777x, 747-8 and 767 are all key growth engines, we believe 787 and 777 are driving the bulk of the share price moves at this point, with good performance and downgrades likely to continue.”

According to Wells Fargo, the Boeing 737 and 777 aircraft generate about 55% of the company’s revenues.

Since Boeing does not provide earnings guidance, the analysts used a DCF model to determine the company’s fair value. Based on a 7% decrease in the Boeing share price over the next year, they now value the stock at $421. If the Boeing share price increased 10% over the next year, then that would value the stock at $414.

“Following significant reductions in 787 and 777 delivery expectations and forward 2015 estimates, we think the shares have good upside, and believe Boeing’s competitive position on 787 and 767 remains solid,” the analysts wrote.

Boeing has returned capital to shareholders in the form of share buybacks and dividends. Last year the company spent more than $11bn on dividends and share buybacks. In the first half of the year, it spent more than $5bn on share buybacks.

The news is likely to be welcomed by Boeing’s CEO, Dennis Muilenburg, who is looking to retire in September. Last month, Muilenburg told Boeing employees: “I believe that my career is now coming to an end. I will leave Boeing as a better company, while a world leader in aerospace and defence.”

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