Wednesday, October 12, 2011

Boeing (BA) 2011 Review

Boeing Co. (BA) is a leading manufacturer of commercial aircraft, business jets, military aircraft as well as variety of command and control and advanced radar systems.

The company has grown profits and dividends at a 10-12% annual rate over the past 10 years earning a return on equity in excess of 20%.

The key factor in BA’s financial performance of late is the 787 Dreamliner. While the first aircraft have been delivered, the company has been plagued with delays that have resulted in increased costs and order cancellations.

However, Despite the aforementioned order cancellations, current backlog currently stands at 3300 aircraft, approximately 90% of which is from foreign carriers that benefit from financial backing of their governments. Demand should remain strong as a result of:

(1) an underlying demand driven by increasing commercial air travel and the need to reduce fuel costs,

(2) a broadly diversified defense business that has strong bookings and a rising backlog,

(3) an ongoing stock buy back program.


(1) a large percentage of its sales are to governments and therefore subject to cutbacks as budgets are tightened,

(2) most of its contracts are fixed price, hence requiring constant vigilance in holding costs down.

Boeing is rated A+ by Value Line, has an 68% debt to equity ratio (though this is largely a function of accounting treatments) and its stock yields 2.7%.

Statistical Summary

Stock Yield Dividend Growth RatePayout Ratio # Increases Since 2001
Debt/EquityROE EPS Down Since 2001 Net MarginValue Line Rating
BA68%52% 35%A+

*due to the accounting treatment of the first three 787 Dreamliner, which were expensed as R&D


Note: BA stock made good progress off its March 2009 low, quickly surpassing the down trend off its October 2007 high (straight red line) and the November 2008 trading high (green line). Long term the stock is in an up trend; the blue line is the lower boundary. Until recently, it was in an intermediate term up trend; however, it broke that trend on the down side and re-set to an intermediate term trading range (purple lines). The Dividend Growth Portfolio owns a full position in BA while the High Yield Portfolio owns a 90% position. The upper boundary of its Buy Value Range is $58 while the lower boundary of its Sell Half Range is $128.