Analyst Sees 10-25% Upside In Aero Stocks

Shares of Rockwell Collins, Inc. COL and Boeing Co BA were both trading higher on Friday after JPMorgan analyst Seth Seifman reaffirmed Rockwell Collins as a top pick, and upgraded Boeing to Overweight.

“We see moderate upside for aero stocks (10-25%) based on healthy aircraft demand and planned production increases as we roll our price targets forward to Dec 2018. Valuation reflects a combination of EPS and cash flow and so our target P/E multiples range wide. Our top aero pick is Rockwell Collins,” he wrote.

Seifman has an Overweight rating and $135 price target on Rockwell Collins and a $240 price target on Boeing.

Seifman Sees 10–25% Upside For Aero Stocks

For Rockwell Collins, Seifman likes the company's diversified revenue base, and see the company moving in the right direction going forward.

“Rockwell Collins is set to grow from rising aircraft production, rising defense budgets, new aircraft ramping, and share gain. In addition, following the BEAV deal, reported earnings, cash flow, and cash conversion should increase significantly in FY18-19,” he said. He also sees about 15 percent of upside for Arconic Inc ARNC shares citing “decent execution of the aero engine ramp and auto aluminization.”

Even Trading At All-Time Highs, Boeing Could Outperform

While Seifman acknowledged Boeing’s recent strong performance, he believes “the upgrade is warranted in a market where outsize upside is elusive. First, BA is among the stocks best positioned to benefit from positive aero fundamentals. Second, BA is consciously trying to shape the industry to capture more value for itself, which could mean strong relative performance and potential upside to estimates.”

He also highlighted how Boeing’s management has been proactive in addressing challenges over the past 18 months.

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