Airbus stock caught an upgrade to Buy. Boeing’s recent struggles are a factor in the improved outlook.
On Tuesday, RBC analyst Ken Herbert upgraded shares of Airbus to Buy from Hold. His target for the price went to EUR192 ($208) from EUR145 ($157).
Airbus stock was up 2% in overseas trading at EUR166.50 a share, leaving shares up about 19% so far this year and up about 43% over the past 12 months.
“We believe the recent positive shift in sentiment has room to run as recent narrowbody share gains could expand further and investor confidence in the mid-decade targets improves,” wrote Herbert.
Narrow-body planes are single-aisle jets such as the A320 and 737 MAX family of aircraft. The positive sentiment shift is the one from Boeing to Airbus as Boeing struggles through more problems with its MAX jets.
The Jan. 5 midair blowout of an emergency-door plug on a MAX jet led the Federal Aviation Administration to cap Boeing’s MAX production at 38 a month, but Airbus can make closer to 50 A320 jets a month. Airbus plans to take production to about 75 a month over the coming couple of years. Boeing wanted to get to 50 MAX jets a month, but additional FAA oversight will delay the increase in production.
Market share shifts slowly between Boeing and Airbus, and a tilt toward Airbus now under way isn’t likely to stop for the foreseeable future, Herbert believes. That is what makes him confident that Airbus can reach its mid-decade targets.
“Incumbency is a powerful competitive advantage in aerospace markets,” wrote Herbert. “We believe Airbus will capture about 55% of the total 2024 to 2026 narrowbody deliveries.”
He projects Airbus’s 2025 free cash flow will reach about EUR6.2 billion, similar to Wall Street estimates, and up from a projected EUR4.3 billion for 2024.
Herbert’s stock-price target of EUR192 works out to about 24 times his estimate for 2025 free cash flow per share. His target price for Boeing stock is $260, about 20 times his estimate of per-share free cash flow for 2025.
Herbert rates Boeing stock Buy as well, which is the prevailing stance on Wall Street: 69% of analysts covering Boeing rate the shares at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Boeing shares is about $261, while the stock was at $180.09 early on Tuesday.
Overall, 83% of analysts covering Airbus stock rate shares Buy. The average analyst price target is about EUR169 ($184) a share.
Write to Al Root at allen.root@dowjones.com