Why Bernstein thinks Boeing stock is the best idea in Aerospace & Defense

Bernstein named Boeing its top pick in Global Aerospace & Defense, citing production momentum, improving fundamentals, and a compelling valuation, maintaining an Outperform rating and $249 price target. The firm highlighted Boeing's increasing 737MAX production rate, expected to reach 42/month by year-end, and progress on the 787 line, coupled with an improved defense outlook and resolution of liquidity concerns following the Jeppesen sale. Bernstein believes Boeing is well-positioned for a sustained recovery as commercial market demand is expected to exceed production into the 2030s, with free cash flow dependent on achieving higher production rates.

Analysis

Bernstein has designated Boeing (NYSE:BA) as its top pick within the Global Aerospace & Defense sector, underpinned by observed production momentum, strengthening fundamentals, and an attractive valuation. The firm highlights Boeing's historical tendency for rapid stock appreciation once its Commercial Airplanes (BCA) division demonstrates an upward trajectory. Current commercial market demand is anticipated to outstrip production capacity well into the 2030s, positioning Boeing for a sustained recovery. Key supporting factors include the 737MAX production line nearing a stable 38 aircraft per month, with CEO Kelly Ortberg projecting a ramp-up to 42 per month by year-end and 47 per month at least six months thereafter. The 787 line is also expected to reach 7 aircraft per month imminently, while certification for the 737-7 and 737-10 models remains on schedule. The defense segment outlook is also improving, evidenced by no new charges in Q1 and a significant win for the F-47 program. Liquidity concerns are reportedly diminishing, particularly with the impending completion of the Jeppesen sale. Bernstein notes that Boeing's current valuation multiple is below historical 'normal' period levels observed prior to the 737MAX groundings and the pandemic. Consequently, Bernstein maintains an Outperform rating and a $249 price target. Free cash flow generation is a critical focus, directly linked to achieving these increased production rates, as emphasized by Ortberg. The overall sentiment surrounding this news is strongly positive, reflecting a bullish outlook on Boeing's prospects.

Key Decisions for Investors

• Investors should consider Boeing's potential for appreciation based on the projected significant ramp-up in 737MAX and 787 production rates, which are key to meeting strong market demand and improving free cash flow.
• Monitor Boeing's ability to meet its stated production targets (38/month, then 42/month for 737MAX) and achieve certifications for new 737 variants, as these are critical milestones for realizing the company's recovery and financial goals.
• Evaluate the current valuation in the context of Bernstein's assessment that it is below historical norms, alongside the improving fundamentals in both commercial and defense segments, when making investment decisions.