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Investing.com - Barclays (LON:BARC) reiterated its Overweight rating and $210.00 price target on Boeing (NYSE:BA) stock on Wednesday, citing potential for significant inventory liquidation in the coming years.
The investment firm noted that Boeing has experienced substantial growth in both inventory and advances/progress payments balances since before the MAX grounding, with inventory acting as a cash drag while advances provided a benefit. This occurred while Boeing Commercial Airplanes (BCA) revenue and production decreased by more than 50%.
BCA inventory has grown by $25-30 billion to $87 billion during this period, according to Barclays. After adjusting primarily for deferred production on MAX/787 models and tooling for 777X/787 models, the firm estimates the physical inventory increase at $20-25 billion, while advances/progress payments have increased by approximately $10 billion.
Barclays estimates Boeing could liquidate approximately $25 billion in physical inventory assuming the physical inventory to sales ratio returns to 2018 levels as BCA sales increase on higher production. Conversely, the firm projects advances could shrink by approximately $15 billion if the advances to sales ratio also returns to 2018 levels.
The investment bank views Boeing’s guidance for free cash flow usage this year as conservative and believes breakeven to positive is possible, estimating midcycle free cash flow, excluding any working capital benefit, at $8 billion, which they expect in 2028.
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