Wall Street rates Boeing stock a buy

By Michelle Dunlop Herald Writer

The Boeing Co. delivered no 787s in May. And the Dreamliners delivered in the first quarter of 2012 each cost about $240 million, an analyst estimates — well more than the plane sells for.

Yet the company has garnered support recently from industry analysts.

On Monday, Sterne Agee and Stifel Nicolaus advised investors to buy Boeing stock while shares are below $70. Boeing shares closed at $67.50 Monday, up 26 cents. Strong, long-term demand for fuel-efficient jets like the 787 make the stock appealing, the analysts said, so a recent drop in Boeing’s stock price is an opportunity for investors.

Analysts from UBS Securities and JP Morgan, meanwhile, found recent deliveries and costs disappointing but were upbeat about long-term prospects.

Boeing had been expected to deliver Air India’s first 787 last week. Instead, the carrier is pressing Boeing for compensation of up to $1 billion for delayed delivery of Air India’s Dreamliners.

For three years, Boeing struggled with 787 supplier and production issues — affecting all customers and necessitating behind-the-scenes penalty negotiations. But Air India’s reported demand for compensation has been seen as unusually big.

A JP Morgan note to investors suggested the Air India situation is somewhat unique. Along with protracted financial problems, the carrier is dealing with a pilot strike.

Still, the financial services firm noted, Boeing will need to ratchet up Dreamliner deliveries in the second half of 2012 if it hopes to meet a goal of handing over 35 to 43 787s this year.

Meeting that goal will depend on Boeing being able to deliver 787s straight off the production line. Boeing’s early-built 787s have needed extensive work to bring the aircraft up to delivery standards.

On Monday, UBS Securities estimated that the 11 787s delivered so far have required an average of 13 months of additional work after rolling off the production line.

All that additional work has proved costly. UBS estimated 787 deliveries cost the jet maker about $240 million per 787-8 delivered in the first quarter of 2012. The current list price for a 787-8 is $193.5 million. And like most aircraft, the 787 is sold at prices lower than list.

UBS suggested, as Boeing previously has stated, that unit costs will improve as Boeing delivers 787s that require fewer changes.

Costs also are expected to improve as Boeing increases Dreamliner production to 10 jets per month, a rate planned for late 2013.