Boeing‘s cash flow and shareholder returns look solid, but 777 weakness and competition from Airbus‘ A320 line are major risks, said Baird analysts Thursday.
Baird initiated coverage on Boeing with an outperform rating and 161 price target, citing a “robust backlog.” Analyst Peter Arment said the aerospace giant will generate $23 billion in free cash flow from 2016 to 2018, with $15 billion available for buybacks after paying dividends.
But Arment warned in the note that Boeing faces a risk from Airbus as the A320neo family has been outselling the 737 Max family and now has 59% of the market share.
Boeing’s 777 production bridge is also a risk, as there is still pressure on widebody orders, according to Arment. The company has been trying to maintain its 777 production rate to ensure a smooth transition to the next-generation 777X, but orders for the older model have been drying up as customers prefer to wait for the new one.
Also Thursday, Boeing announced that third-quarter deliveries fell 5.5% year over year to 188 planes. Deliveries of its 737 fell to 120 from 126, 787 deliveries fell to 36 from 37 a year ago, and 777 deliveries were flat at 22.
Airbus said Thursday that it delivered 62 planes in September, up 26.5% from a year ago, including 10 A321neos and 10 A321 current engine option aircraft to VietJet. The European aerospace giant also reported new orders and bookings for 49 planes last month.