Report
Danny Goode
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Morningstar | MAX Groundings Remain a Near-Term Impediment to Boeing's Cash Flow

As Boeing exits 2019 and moves beyond its MAX complications, we expect the firm will capitalize on ramping 737 and 787 production, turning rate hikes into solid top-line growth and margin expansion. We also believe its budding services business will boost operating income in coming years, as the company aims for $50 billion in annual revenue from this segment. We assume that coordinating with suppliers when vertically integrating its supply chain, and introducing the new 777x in 2020, while also attempting matching demand through production increases will be Boeing’s biggest challenges. A backlog of nearly 6,000 aircraft will allow Boeing to boost production into the next decade and drive commercial aircraft growth. We think the 737 MAX groundings and subsequent 737 production cut will prevent deliveries from growing year over year in 2019, but a resurgence in production by 2020 should bring commercial aviation deliveries above 1,000 units.Recent U.S. defense budget increases have buoyed growth in Boeing's defense business. And the company's wins on the T-X trainer, MQ-25, and the UH-1N replacement, as well as the initial phase of GBSD (modernization of U.S. land-based nuclear missiles), will also drive revenue growth. However, we think there will be margin headwinds over the next few years because of development on these recent program wins. We anticipate margin expansion and operating cash flows to increase as the 787 deferred production burns down. Despite the recent MAX groundings, we think the 737 will eventually ramp to 57 aircraft produced per month and top out in the mid-60s next decade. Moderating R&D costs plus improved 787 margins (related to supplier pricing step-downs, the introduction of the 787-10, and block extensions) should also improve margins. Boeing continues to toy with the idea of launching a new next-generation midsize aircraft; we expect management may secure authority to offer this in 2019 with a formal launch in 2020. Lastly, we believe the planned acquisition of Embraer's regional jets will unlock strategic opportunities--a younger engineering workforce, military transport sales, and a global production footprint--for Boeing.
Underlying
BOEING COMPANY (THE)

The Boeing is an aerospace firm. The company's segments include: Commercial Airplanes, which develops, produces and markets commercial jet aircraft and provides fleet support services, mainly to the commercial airline industry; Defense, Space and Security, which engages in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for strike, surveillance and mobility, vertical lift, and commercial derivative aircraft; Global Services, which provides supply chain and logistics management, pilot and maintenance training systems and services, and data analytics and digital services; and Boeing Capital, which manages overall financing exposure.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Danny Goode

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