After you receive this Alert, we will be initiating a position in Boeing (BA) , buying 200 shares at roughly $168.64. Following the trade, BA will represent 1.05% of the portfolio.
We are bringing BA out of the Bullpen and into the portfolio as our recent cash raising efforts and exit of Colgate-Palmolive (CL) has made room for this additional name.
In our bullpen post last week here, we outlined why now is the time to start getting more bullish on this Aerospace & Defense company. More specifically, we believe Boeing is nearing the conclusion of the 737 Max saga, and we expect a happy ending and globally coordinated recertification before the end of this year following the head of the Federal Aviation Administration (FAA) positive test flight last week. This is a potential catalyst event we want to be buyers of BA ahead of that. We also note that since our bullpen post, it was reported here that Ryanair (RYAAY) airlines could be placing a bigger MAX order in the future, and such a deal would help Boeing clear out inventory.
Additionally, we believe 2021 will be the inflection year to Boeing's free cash flow. As discussed in our bullpen post, the work by analysts at Goldman Sachs suggest the free cash flow inflection point has historically been a good entry point to get in the stock. Additionally, the Goldman analysts estimate Boeing's free cash flow per share could reach a whopping $22.40 in a normalized year 2023. When visibility behind Boeing estimates starts to improve (driven by 737 ungrounding and improvements to air travel/global tourism), we think investors will rush into the stock and we want to be ahead of this.
This stock does not come without risks and we need to see the airlines receive another relief package, but we believe this will happen because the political pressure is too large. There were already talks last Friday by Speaker Pelosi of an airline focused package if a broader stimulus deal cannot be agreed upon. Additionally, we think the 15-minute rapid tests by Abbott Lab's (ABT) should help make air travel and global tourism more feasible as we wait for an effective vaccine.
We are initiating the position with a price target of $215, which reflects roughly 24x consensus earnings per share estimates in 2023, which we believe should be a normalized year.