Will Boeing Crash or Soar?

With shares of The Boeing Company (NYSE:BA) trading at around $91.18, 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

Boeing has been given an OUTPERFORM rating here since December, but has the stock been too hot? Let’s take a look at some positives and negatives first. Then we’ll get to some important numbers followed by a detailed conclusion.

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Positives:

  • Highly innovative company
  • Increased productivity
  • Strong cash flow
  • 2.10 percent yield (lower than peers)
  • Increased deliveries for 737 and 777
  • Decreased R&D expenses
  • FY2013 revenue expected to come in between $82 billion and $85 billion
  • 787 given the green light by FAA
  • Analysts love the stock: 19 Buy, 4 Hold, 1 Sell

Negatives:

  • Decline in earnings in 2012
  • Decreased deliveries for 787
  • Unimpressive performance by Boeing Capital
  • Didn’t hold up as well as peers in 2008

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Boeing, General Dynamics Corp. (NYSE:GD), and Lockheed Martin Corporation (NYSE:LMT). Boeing has a market cap of $69.42 billion, General Dynamics has a market cap of $26.20 billion, and Lockheed Martin has a market cap of $31.78 billion.

BA

GD

LMT

Trailing   P/E

17.17

N/A

11.54

Forward   P/E

12.85

10.52

11.08

Profit   Margin

5.03%

-1.04%

6.04%

ROE

64.43%

-2.56%

302.40%

Operating   Cash Flow

$7.20 Billion

 $2.77 Billion

 $3.19 Billion

Dividend   Yield

2.10%

3.10%

4.60%

Short   Position

1.30%

1.60%

3.20%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for Boeing is weaker than the industry average of 0.74. However, this isn’t a poor debt-to-equity compared to peers, and Boeing would have no problem improving its debt situation if necessary.

Debt-To-Equity

Cash

Long-Term Debt

BA

1.21

$11.81 Billion

$9.17 Billion

GD

0.34

$3.74 Billion

$3.91 Billion

LMT

20.74

$3.06 Billion

$6.30 Billion

 

T = Technicals Are Strong    

Boeing has outperformed its peers for every time frame listed below.

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1 Month

Year-To-Date

1 Year

3 Year

BA

6.23%

21.80%

21.68%

35.35%

GD

5.46%

7.35%

12.71%

5.23%

LMT

2.93%

9.09%

15.19%

33.23%

 

At $91.18, Boeing is trading above all its averages.

50-Day   SMA

84.44

100-Day   SMA

79.94

200-Day   SMA

76.10

 

E = Earnings Have Steady                    

Earnings declined in 2012, but Boeing always delivers impressive profits. Boeing even delivered profits in 2008 and 2009, which wasn’t an easy feat for most companies throughout the broader market. Revenue has improved for two consecutive years.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

60.91

68.28

64.31

68.74

81.70

Diluted   EPS ($)

3.67

1.84

4.45

5.34

5.11

 

When we look at the last quarter on a year-over-year basis, we see a decline in revenue and an increase in earnings.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   billions

19.38

20.00

20.01

22.30

18.89

Diluted   EPS ($)

1.22

1.27

1.35

1.29

1.44

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Defense spending is a concern, and the Industrial sector doesn’t perform well during weak economic times. However, as far as Boeing is concerned, the demand for its products and services remains strong.

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Conclusion

Boeing will likely get hurt if we see a steep market correction. Unlike most blue chips that have performed well for decades, Boeing has had several lengthy clips of poor performance. However, this has always turned out to be an incredible buying opportunity. The year 2008 was the stock’s biggest hit, but those losses have been recouped. Whoever had the guts to double down (or simply buy) at that time is feeling wise and wealthy right now. If this type of environment were to present itself again and the stock nosedived, there would be absolutely zero concerns of the company going under. To even think that as a possibility is absurd. Therefore, whoever is willing to buy at lower levels is highly likely to be rewarded at some point down the road. The good news is that Boeing is better situated than it was in 2008. And we don’t even know if the market will ever come back down to reality. If the market doesn’t come back down to reality and it keeps trading higher, then Boeing is an easy winner.

Boeing is a long-term OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.

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