Leveraged ETF Gets A Lift UBS's Boeing Upgrade

Shares of The Boeing Company BA surged 4.29 percent on above-average volume last Thursday after UBS upgraded the stock while issuing a major upward price target revision.

UBS upgraded Boeing, the largest component in the Dow Jones Industrial Average, to Buy from Neutral with a price target of $515. That is well above the stock's Thursday closing price of just under $346.

What Happened

Not surprisingly, the Boeing upgrade sent the broader aerospace and defense complex higher yesterday. The Dow Jones U.S. Select Aerospace & Defense Index, a benchmark in which Boeing is the largest component with a weight of over 10 percent, gained 1.38 percent and has since added an extra 1.5 percent to that, in tune with Boeing's own 2 percent climb.

That's good news for the Direxion Daily Aerospace & Defense Bull 3X Shares DFEN. DFEN, the only leveraged aerospace and defense exchange traded fund (ETF), looks to deliver triple the daily returns of the Dow Jones U.S. Select Aerospace & Defense Index. DFEN gained over 4 percent on Thursday.

Why It's Important

“We believe Boeing shares carry the best upside in the sector with much of the cash growth and margin expansion story set to be unlocked with our $31 per share (free cash flow estimate for 2020),” which is 15% ahead of consensus, said UBS analyst Myles Walton.

A breakout for Boeing, assuming that scenario materializes, could renew interest in DFEN. Data suggest that for the week ending Aug. 15^th, volume in the leveraged defense ETF was declining. While it is a leveraged ETF and not intended for use over long holding periods, DFEN generally does a solid job of sticking close to its underlying index. Over the past month, DFEN's variance from that index is just -0.93 percent, according to issuer data.

What's Next

“We believe Boeing shares carry the best upside in the sector,” said Walton. “Much of the cash growth and margin expansion story (is) set to be unlocked with our $31 per share in free cashflow estimate for 2020, 15 ahead of consensus.”

DFEN could catch a bid if Boeing is able to rally through the $365 area and make a new 52-week high from there.

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