Think Long Term: Boeing Is a Buy At Its Current Price

Source: Boeing

The Boeing Co. (NYSE:BA) is a Dow Jones component that most investors are familiar with. While the business end isn’t exactly a household name, nearly everyone has heard of the company, if at the least, for its airplanes. While airplanes are a large component of the business, it also is involved in a number of other enterprises. Aside from commercial jetliners, the company is involved in designing and manufacturing military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company operates in five main segments you should be aware of, which reflect its operations: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital.

The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements, as well as provides related support services to the commercial airline industry. This segment also provides aviation services support, aircraft modifications, spares, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment is involved in the research, development, production, and modification of manned and unmanned military aircraft and weapons systems for the global strike and vertical lift, mobility, surveillance, and engagement.

The Network & Space Systems segment is engaged in the research, development, production, and modification of electronics and information solutions, strategic missile and defense systems, space and intelligence systems, as well as space exploration products. The Global Services and Support segment offers a range of products and services comprising integrated logistics, including supply chain management and engineering support, maintenance, and modification.

The Boeing Capital segment facilitates, arranges, structures, and provides financing solutions, such as equipment under operating leases, finance leases, notes and other receivables, assets held for sale or re-lease, and investments for its commercial airplanes customers. With each of these segments, the company has grown tremendously in the last 100 years and is incredibly profitable. The stock has pulled back about 10 percent from its highs, and as such, I question if now is the time to get long. To help inform this decision, a review of the company’s recent performance is justified.

Well, Boeing continues to deliver. In its most recent quarter, the company reported that revenue increased 8 percent to $20.5 billion on higher commercial volume compared to the comparable quarter last year. Core earnings per share (a non-GAAP measure) increased 14 percent to $1.76 when excluding a benefit of 19 cents per share for the 2012 research and development tax credit recorded in the first quarter of 2013. First-quarter 2014 core operating earnings (again, on a non-GAAP basis) increased 12 percent to $2.1 billion while core operating margin increased to 10.2 percent reflecting continued strong operating performance. GAAP earnings from operations included previously announced non-cash charges totaling $334 million (29 cents per share) for retirement plan changes.

As a result of amazing performance, the company’s core earnings per share guidance for 2014 increased to between $7.15 and $7.35, from $7 to $7.20, to reflect the benefit of a tax settlement to be recognized in the second quarter of 2014, as well as to reflect increased sales. GAAP earnings per share guidance for 2014 is reaffirmed at between $6.10 to $6.30, as the tax settlement benefit was offset by the retirement plan charges and negated increases in sales. GAAP pension expense guidance for 2014 is now at approximately $3.2 billion, up from $3.1 billion, to reflect the retirement plan charges. The company had also reaffirmed its 2014 revenue, operating cash flow, and deliveries guidance. This is important, as pension charges have long been a concern for the company, but the strong performance of the company has help to offset these impacts.

The company is also flush with cash. Operating cash flow in the quarter was $1.1 billion, reflecting commercial airplane production rates, strong core operating performance, and timing of receipts and expenditures. During the quarter, the company repurchased 19.4 million shares for $2.5 billion, leaving $8.3 billion remaining under the current repurchase authorization expected to be completed over the next two to three years. The company also paid $0.5 billion in dividends in the quarter, reflecting an approximately 50 percent increase in dividends per share compared to the same period of the prior year.

Looking ahead, I have mentioned that Boeing’s core earnings per share guidance for 2014 increased to between $7.15 and $7.35 from $7 to $7.20. This will be done based on guidance of $87.5 billion to $90.5 billion of revenue coming in for the year. The company expects to deliver 715 to 725 planes for the year. This should generate operating cash flow of approximately $6.25 billion dollars after pension contributions. Further, the company expects both the Global Services and Support as well as Network and Space Systems to increase sales, helping the company, and the stock, propel higher into 2014. Given the recent weakness, I think the stock is a solid long-term buy. The company pays a 2.2 percent dividend, as well, helping to cutoff some downside. I rate shares a buy at current levels and assign a $155 price target.

Disclosure: Christopher F. Davis holds no position in Boeing and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and an $155 price target.

More From Wall St. Cheat Sheet: