Is Boeing a Good Investment for the Next Decade?
As airline companies such as Delta (NYSE:DAL) and United Continental (NYSE:UAL) thrive with more passenger volume, longer flights, and greater expectations, Boeing (NYSE:BA) has also flourished in the process. Over the past five years, Boeing’s stock has increased more than 200 percent, but in gauging the bullish sentiment from its recent shareholder meeting, focusing on both costs and its backlog, investors should feel confident as we look toward the next five years and beyond.
In retrospect, investors of Boeing know that its stock is not tied down to the fundamental performance of any one quarter, which includes the performance of any single aircraft such as the 777 or 787. Instead, Boeing’s outlook is judged by the size of its backlog, which is a reflection of how long the company can operate at full capacity without the addition of new orders.
At the shareholder meeting, Boeing disclosed that its backlog has now reached $441 billion, its highest ever, with nearly 85 percent coming from the commercial side of its operation, which bodes well for airline companies. While the company continues to invest in manufacturing while increasing its scale, the company’s top capacity for 2014 is pretty much a reflection of its top-end revenue guidance for $90.5 billion. Essentially, this means Boeing has enough orders, or business, to continue operating at this level for five years without receiving one new order at its current scale.
With that said, five years of consistent revenue, regardless of the economy, is about as good an investment you can find in this market, especially considering the fact that Boeing has an aggressive buyback policy — $2.5 billion shares repurchased in the first quarter — that will lead to a higher EPS over time. Not to mention, Boeing has already cut $4 billion of costs from its lagging defense segment in recent years and announced plans to cut another $2.1 billion, which consequently should boost its already solid 7.2 percent operating margin. Hence, at 15.8 times next year’s earnings, Boeing is not expensive but rather priced for continued execution.
Albeit, Boeing remains an investment that is both safe, paying a 2.2 percent dividend yield with five years of business already in place, and that will grow. Already I’ve mentioned that Boeing is investing in its infrastructure and to improve both the manufacturing process and increase scale. However, its backlog also continues to grow by the month. In its first quarter, announced in April, Boeing reported $19 billion in new net orders, adding to its backlog.
At this rate, Boeing will add more than $70 billion worth of new orders per year, meaning its current five years’ worth of business nearly doubles when you account for future orders. Overall, Boeing remains a great investment, as its shareholder meeting proved, one that’s sure to innovate further in the next decade and create new planes that are more advanced, which leads to an even faster-growing backlog. The bottom line: Boeing’s stock gains are far from over. This is a company that’s going to keep getting better with time and likely secure for the next decade.