Boeing Co: Has BA Stock Become A Stock To Buy?

- October 27, 2016
illustration by Chad Boggs

illustration by Chad Boggs

Boeing Co (NYSE:BA) stock officially broke free out of a tight trading range that peaked around $135. It started the week before earnings, and after a near 5% post-earnings move BA stock is now trading over $145/share. Still, Boeing stock is higher by just 7% over the last three years, meaning it has underperformed the market by a great deal. Fortunately, those days of underperformance may be long gone.

This is a company with a backlog of orders to take it eight quarters into the future. Specifically, Boeing’s backlog at the end of Q3 topped $460 billion, with it adding 107 new net orders to bring the total to 5,600 planes.

While Boeing is currently operating at capacity, its capacity continues to grow with new investments. Looking ahead, Boeing’s revenue growth will start to accelerate, pushing top line growth to nearly 7% next year. That will be far better than GDP, and will help drive BA stock to a more acceptable multiple.

Currently, Boeing stock trades at just 11.4 times forward earnings. This is a company that once traded at a forward P/E ratio of 18. However, decelerated growth and concerns about slowed production caused a multi-year span where Boeing stock traded flat despite EPS growth.

In turn, BA stock’s multiple has gotten cheaper, and with its growth accelerating, there is a very likely scenario where we will now see Boeing stock gains as it appreciates to a higher P/E ratio. In retrospect, a 15x multiple could push Boeing stock more than 30% higher, a scenario that I view as more than likely.

Regardless of BA stock gains

With that said, Boeing’s newfound revenue growth and the likelihood for multiple expansion is nice. However, it is not the end all investment story for owning Boeing stock.

The real reason to own BA stock is safety, limited to no real downside, and its approach to returning capital back to shareholders. This is a company that is focused on growing its cash flow, and returning most of that cash flow to shareholders.

During Q3 Boeing’s operating cash flow rose 12% to $3.2 billion and the company affirmed its target for $10 billion in cash flow this year or more. Of the $3.2 billion that Boeing created, it spent $1 billion to buyback stock and another $700 million on dividends.

First and foremost, that $700 million maintains a 3% yield, which makes it ideal for my dividend portfolio.

The real reason(s) to own Boeing stock

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  1. By Boeing Co: Will BA Stock Go Higher? on November 25, 2016 at 4:01 am

    […] late October I published a rather detailed explanation for why I made BA stock my largest single holding. I bought Boeing […]

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