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Boeing’s Cash Flow Could Jump 35%; Lockheed Cash Boom Also Seen

February 5, 2018 | By | Reply More

Boeing (BA) and Lockheed Martin (LMT) were given big price-target hikes Monday due to an expected free cash flow boom.

X Strong demand for commercial jets, expected future defense spending hikes, tax cuts, and international demand for U.S. military equipment factor into the sunny outlooks.

Berenberg Bank maintained a buy position and raised the price target on Boeing to 415 from 395 citing “strong business momentum” in a research note to investors.

Analysts estimated that free cash flow (FCF) will rocket to $ 16.4 billion by 2020 and $ 18 billion by 2022, marking a 35% jump from 2017’s $ 13.3 billion total. Part of that is the cut in the corporate tax rate to 21% from 35%: Boeing was on track to generate nearly $ 12 billion of cash for 2017 before the tax reform.

But Berenberg also noted improvements in volume, mix and productivity, which led analysts to raise their forecast for cash generation by around $ 1.5 billion per year.

“Boeing’s highly visible revenue from a large commercial aerospace backlog and contracted defense programs and service activities support sustained organic growth over the coming years,” the note said. “The longer-term outlook for defense has improved given rising global tensions and President Trump’s plans to increase spending in revenue terms.”

Risks included a significant slowdown in commercial aerospace orders, the cost impact of the launch of a new aircraft program, and the company failing to win the contract for the U.S. Air Force T-X trainer.

In 2017, Boeing delivered a record 763 airliners and forecast this will rise to between 810 and 815 planes this year. The 737 is doing well and the company is even speeding up production of the 787 Dreamliner, which had long been a drain on resources, as it tries to capitalize on a favorable market.

The company racked up almost $ 30 billion in losses building the first 500 Dreamliners, but has been manufacturing them at a profit since 2016. It is expected the profitability of the aircraft’s production will rise even further in coming years, offsetting the previously incurred losses.

Shares of aerospace giant Boeing were down 8% and Lockheed Martin, which is the world’s largest defense contractor, sank 7% on the stock market today, amid a broad market meltdown.


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Meanwhile Lockheed Martin was given a price target rise to 403 from 348 Monday by the Buckingham Research Group, which holds a buy position on the stock.

In a research note, analyst higher Richard Safran said he expects free cash flow increases to come from “higher than expected U.S. defense spending and increasing international demand for U.S. defense equipment.”

Safran also said investors are underestimating the strength and duration of the current defense spending cycle. The note came on the same day reports emerged saying that the Pentagon is to ask Congress to approve the purchase of 77 of Lockheed’s F-35 jets for $ 10.7 billion. The proposal is expected to be included as part of a fiscal 2019 base defense budget plan that will cost around $ 597 billion.

He was also positive about the effects tax reform will have going forward.

“In our view, the Trump administration philosophically believes that cash generated by companies is better spent by companies than by the Government,” Safran said in his research note. “We think this represents a fundamental shift in policy relative to prior administrations.”

The analyst said that aside from typical risks with exposure to government spending, the primary risks for Lockheed Martin are program execution, shifting discretionary spending priorities and pension liability.

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