The Boeing Company Come Fly With Me

BA : NYSE : US$125.58 BUY 
Target: US$160.00
Transportation and Industrials — Airlines and Aerospace
737 RATE INCREASE AND IMPLICATIONS FOR THE SECTOR
Investment recommendation
We believe BA’s strong hint that rates will go up further on the
737 is a strong statement about its confidence in the commercial
cycle, and a positive catalyst. It will also help BCA margins and
cash flow as BA frees up additional slots to sell. With BA stock
outperforming the market since the commentary, we believe a
step up in 737 rates is a positive catalyst. We continue to like
Boeing for the potential cash flow upside, and strength in the
commercial cycle.
Investment highlights
 We believe that the 737 accounts for over 50% of BA’s
earnings, but is also a very significant program for SPR, DCO,
as well as most of our sector. We believe that a step up to
52/month on the 737 can add the most to BA, DCO, ESL and
SPR valuations.
 We are concerned that a rate of over 50/month from both
Boeing and Airbus adds additional risk if these rates are not
sustainable. We believe the supply chain is focused on
50/month as a natural threshold.

Valuation
Our $160 price target is based on the average of an 18.0x EPS
multiple and a 12.0x EBITDA multiple, applied to our 2015
estimates.

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