J.P. Morgan North America Equity Research 24 April 2014 Boeing Company Q1 Encouraging on Several Fronts; Raising Estimates and Price Target Q1 contained several positive developments: 1) core BCA margins are expanding at an increasing pace, a continuation of a trend that we have highlighted in recent quarters; 2) 787 deferred production growth of $1.5 bn was in line with our estimate, and it is our impression that management is growing more confident about achieving its target for a 425 bn peak late this year; 3) free cash flow exceeded our forecast, reinforcing ow view that 2014 FCF will materially exceed guidance; and 4) management aggressively bought back stock. We continue to see significant cash flow growth in 2015 and beyond as 787 cash bum reverses, and we are raising our EPS estimates as well. As a result, ow Dec 2014 price target, which is based on both ow cash flow and EPS expectations, is up by $5 to $167, for 25-30% upside. A key potential catalyst in the next 3.6 months would be significant declines in 787 unit costs, which would shore up confidence in our cash flow outlook. We continue to forecast —$12 of FCF in 2015, so the stock trades at only 10-I 1 x. • Core BCA margin is expanding at an increasing rate. We estimate that the core commercial margin (excluding 787, 747-8, and =) expanded 250 bps y/y to 19.5% in Q I, following up 100 bps of expansion in 3Q13 and 200 bps in 4Q13. We now assume it remains —19.5% going forward (with a seasonal step down in Q4) but some of the key performance drivers, including Partnering for Success and internal cost takeout efforts, still have room to run, creating potential for further expansion. Management highlighted Partnering for Success nearly a year ago at its investor meeting, and the performance since then has been impressive. Nig The Boeing Company (BA;BA US) FYE Dec 2011A 2012A 2013A 2014E (Prev) 2014E (Curl) 2015E (Prey) 2015E (Curs) Company Data Price (S) 130.63