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The Boeing Company (BA), Delta Air Lines, Inc. (DAL): Thursday’s Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, headlines feature a pair of downgrades from Standpoint Research, which is ratcheting back ratings on both Delta Air Lines, Inc. (NYSE:DAL) and Guess?, Inc. (NYSE:GES) But the news isn’t all bad. So before we get to those two, let’s take a look at why one other analyst sees…

Delta Air Lines, Inc. (NYSE:DAL)

The Boeing Company (NYSE:BA) flying higher
Confirmation that United Continental Holdings Inc (NYSE:UAL) has resumed flights aboard upgraded and verified-not-likely to-combust The Boeing Company (NYSE:BA) Dreamliners is sparking (sorry — poor choice of words) some enthusiasm on Wall Street today. Analyst Oppenheimer has reportedly upped its price target on the already buy-rated stock, and now thinks Boeing shares are going to $120. And while I’m not entirely convinced that $120 is the “right” number for The Boeing Company (NYSE:BA), I do agree that on balance, the stock does look buyable today.

Why? Let’s take a look at the numbers.

The Boeing Company (NYSE:BA) shares currently cost just under 19 times earnings. The stock pays a 2% dividend, and is pegged to grow earnings at roughly 14% per year over the next five years. So far, this suggests a stock that’s fairly modestly overpriced — but wait. We’re not done.

The Boeing Company (NYSE:BA) currently generates about $1.32 in free cash flow for every $1 it gets to report as “net income” under GAAP accounting standards. As a result, its real cash profit is significantly bigger than its P/E ratio lets on. Indeed, if I value the stock on free cash flow, Boeing shares look fairly priced today based on their growth prospects alone. That’s before you factor in the $2.6 billion in net cash on Boeing’s balance sheet, and before you count the 2% dividend yield.

Result: I think The Boeing Company (NYSE:BA) shares still have room to rise. Maybe not by the 20% that Oppenheimer projects, but by some amount, certainly.

Delta grounded
If only I could say the same thing about key The Boeing Company (NYSE:BA) customer Delta Air Lines, Inc. (NYSE:DAL). Standpoint Research pulled its buy rating on the stock this morning, noting that while “DAL still looks attractive at 6 times estimates for next year … the estimates for 2014 may be a bit speculative at 50% above trailing twelve months earnings and the company is carrying a lot of debt.”