Aircraft Manufacturing Stocks

Boeing Co. Valuation – February 2018 $BA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Boeing Co. (BA) fares in the ModernGraham valuation model.

Company Profile (obtained from Marketwatch): The Boeing Co. is an aerospace company that manufactures commercial jetliners and defense, space and security systems. Its products and tailored services include commercial and military aircraft, satellites, weapons, electronic, and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training. The company is organized into three business units: Boeing Commercial Airplanes, Boeing Defense, Space & Security and Boeing Capital. The Commercial Airplanes segment develops, produces and markets commercial jet aircraft and provides related support services, principally to the commercial airline industry worldwide. Its Defense, Space & Security business comprises three segments: Boeing Military Aircraft, Network & Space Systems and Global Services & Support. The Boeing Military Aircraft segment is engaged in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for global strike, including fighter and combat rotorcraft aircraft and missile systems; global mobility, including tanker, rotorcraft and tilt-rotor aircraft; and airborne surveillance and reconnaissance, including command and control, battle management and airborne anti-submarine aircraft. The Network & Space Systems segment is engaged in the research, development, production and modification of the following products and related services: electronics and information systems, including command, control, communications, computers, intelligence, surveillance and reconnaissance, cyber and information solutions, and intelligence systems; strategic missile and defense systems; space and intelligence systems, including satellites and commercial satellite launch vehicles; and space exploration. The Global Services & Support segment provides customers with mission readiness through total support solutions. Its global services business sustains aircraft and systems with a full spectrum of products and services through integrated logistics, including supply chain management and engineering support; maintenance, modification and upgrades for aircraft; and training systems and government services, including pilot and maintenance training. The Boeing Capital segment seeks to ensure that Boeing customers have the financing they need to buy and take delivery of their Boeing product and manages overall financing exposure. The company was founded by William Edward Boeing on July 15, 1916 and is headquartered in Chicago, IL.

BA Chart

BA data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BA – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $212,019,988,315 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.16 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 176.27% Pass
6. Moderate PEmg Ratio PEmg < 20 34.62 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 603.28 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.16 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.10 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.28
MG Growth Estimate 10.37%
MG Value $300.74
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $149.12
MG Value based on 0% Growth $87.41
Market Implied Growth Rate 13.06%
Current Price $355.99
% of Intrinsic Value 118.37%

Boeing Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $6.08 in 2014 to an estimated $10.28 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 13.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Boeing Co revealed the company was trading above its Graham Number of $12.25. The company pays a dividend of $5.68 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 34.62, which was above the industry average of 22.62. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-44.58.

Boeing Co scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$44.58
Graham Number $12.25
PEmg 34.62
Current Ratio 1.16
PB Ratio 603.28
Current Dividend $5.68
Dividend Yield 1.60%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $65,161,000,000
Total Current Liabilities $56,269,000,000
Long-Term Debt $9,782,000,000
Total Assets $92,333,000,000
Intangible Assets $8,132,000,000
Total Liabilities $91,978,000,000
Shares Outstanding (Diluted Average) 601,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.09
Dec2017 $13.43
Dec2016 $7.61
Dec2015 $7.44
Dec2014 $7.38
Dec2013 $5.96
Dec2012 $5.11
Dec2011 $5.34
Dec2010 $4.45
Dec2009 $1.84
Dec2008 $3.67
Dec2007 $5.28
Dec2006 $2.85
Dec2005 $3.20
Dec2004 $2.30
Dec2003 $0.89
Dec2002 $0.61
Dec2001 $3.41
Dec2000 $2.44
Dec1999 $2.49
Dec1998 $1.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.28
Dec2017 $9.38
Dec2016 $7.13
Dec2015 $6.68
Dec2014 $6.08
Dec2013 $5.13
Dec2012 $4.51
Dec2011 $4.18
Dec2010 $3.60
Dec2009 $3.24
Dec2008 $3.78
Dec2007 $3.53
Dec2006 $2.42
Dec2005 $2.17
Dec2004 $1.74
Dec2003 $1.63
Dec2002 $2.01

Recommended Reading:

Other ModernGraham posts about the company

9 Best Stocks For Value Investors This Week – 11/28/15
Boeing Company Valuation – November 2015 Update $BA
15 Best Stocks For Value Investors This Week – 8/22/15
Boeing Company Analysis – August 2015 Update $BA
5 Undervalued Dow Stocks to Research – July 2015

Other ModernGraham posts about related companies

AAR Corp Valuation – Initial Coverage $AIR
TransDigm Group Inc Valuation – Initial Coverage $TDG
Textron Inc Valuation – June 2016 $TXT
Boeing Company Valuation – June 2016 $BA
Textron Inc Valuation – December 2015 Update $TXT
Boeing Company Valuation – November 2015 Update $BA
Textron Inc. Analysis – August 2015 Update $TXT
Boeing Company Analysis – August 2015 Update $BA
Textron Inc. Quarterly Valuation – May 2015 $TXT
Boeing Company Quarterly Valuation – May 2015 $BA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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