Will Boeing’s Dreams Turn into a Nightmare for Investors?

With shares of Boeing (NYSE:BA) trading at around $74.02, is BA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Would you like to travel on a beautiful new plane? More specifically, it’s a Boeing 787 Dreamliner. Now, before you make this decision, you must keep in mind that not every little detail in order to ensure passenger safety has been thought out. But that’s okay. Don’t worry. These problems are normal for a jet program that’s just entering service. If a few people have to fear for their lives during an emergency landing, so be it. That’s par for the course. So, would you like to board the Boeing 787 Dreamliner? There have only been two major issues so far, one emergency landing with United Airlines and now a grounding with Qatar Airways. Both incidents related to the electrical generator. But who needs a fully operational electrical generator while flying?

If you’re looking at this situation from a moral and safety standpoint, it’s atrocious. Everything on the 787 Dreamliner should have been tested 100 times over before taking passengers. From an investing standpoint, these incidents have done nothing more than present a buying opportunity. It’s likely, as well as hopeful, that Boeing will fix the error to make sure it never happens again.

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There are several other reasons that Boeing won’t have a problem making a healthy profit in the future. These reasons include North Korea, Iran, Afghanistan, Iraq, Syria, Libya, and more. Saudi Arabia is also a big spender when it comes to weaponry, and they have money to burn.

Another potential positive is that while there has been some insider selling recently, it’s nothing compared to what we have seen at other companies ahead of the fiscal cliff. There doesn’t seem to be any panic at Boeing when it comes to the fiscal cliff situation.

Other positives include healthy margins, over $5.80 billion in operating cash flow, a 2.30 percent yield, and a forward P/E of 14.60. The yield isn’t as impressive as the yield offered by competitors Lockheed Martin (NYSE:LMT) and Northrop Grumman Corporation (NYSE:NOC), which are five percent and 3.20 percent respectively, but it’s nothing to complain about, either.  

Let’s take a look at some important numbers for Boeing.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Boeing is normal – barely. It’s stronger than the debt-to-equity ratio for Lockheed Martin, yet weaker than the debt-to-equity ratio for Northrop Grumman Corporation. The balance sheets for all three are similar; they’re all relatively close to balanced.  

Debt-To-Equity

Cash

Long-Term Debt

BA

1.46

$11.17 Billion

$11.19 Billion

LMT

2.67

$4.65 Billion

$6.52 Billion

NOC

.36

$3.53 Billion

$3.93 Billion

 

T = Technicals on the Stock Chart Are Strong

Boeing’s stock has performed well over the past three years. The rate of return has slowed, but with a nice dividend to boot, this has been a sound investment for all timeframes listed below.

1 Month

Year-To-Date

1 Year

3 Year

BA

1.38%

3.84%

7.42%

43.84%

LMT

1.06%

16.58%

22.91%

32.79%

NOC

3.95%

19.24%

26.09%

34.85%

 

At $74.09, Boeing is currently trading above all its averages.

50-Day SMA

72.53

100-Day SMA

72.33

200-Day SMA

72.74

 

E = Earnings and Revenue Have Been Impressive

Boeing might not be the best growth story in the world, but this is a company that knows how to make money. While investors love to see growth more than anything else, the point of being in business is to profit. Boeing understands this well. Like many other companies in a variety of sectors, 2009 proved to be a bottom.

2007

2008

2009

2010

2011

Revenue ($)in billions

66.39

60.91

68.28

64.31

68.74

Diluted EPS ($)

5.28

3.67

1.84

4.45

5.34

 

Is there a chink in the armor? While revenue increased last quarter, earnings fell. Net income dropped to $1.098 billion from $1.032 billion YoY. However, this shouldn’t concern long-term investors.

9/2011

12/2011

3/2012

6/2012

19/2012

Revenue ($)in billions

17.73

19.56

19.38

20.00

20.01

Diluted EPS ($)

1.46

1.85

1.22

1.27

1.35

 

T = Trends Do Not Support the Industry

Aerospace/Defense Products & Services has proven to be an extremely profitable industry for decades. Despite Pentagon spending cuts on the horizon, Boeing, as well as its competitors, will still have plenty of business.

Conclusion

There have been some long periods of pain for BA through the years. Even if this were to happen again in the coming years, it’s important to remember that this stock is up close to 10,000 percent since its IPO. The dividend also makes tough times easier to deal with.

Based on all factors covered above, Boeing is an OUTPERFORM.

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