Today I continue my series on the DOW 30 component stocks. I take a first look at Boeing (BA). Boeing is an exceptional dividend grower. The stock is almost speculatively priced. Lastly, Boeing’s balance sheet is horrible. I wouldn’t even consider buying this bloated defense contractor given its balance sheet and massive defense budget cuts in the near future. To see how I arrived at these conclusions read on.
Boeing (BA)
Price: $69.95
Shares: 749.05 million
Market capitalization: $52.40 billion
What does the company do: Boeing manufactures commercial airplanes, provides defense equipment, and maintains a small captive finance division. Its headquarters in Chicago, the firm actively competes with Airbus in commercial aviation, and Lockheed Martin, Northrop Grumman, and General Dynamics in defense operations. Sales are nearly split 50/50 between the airplane and defense segments. The firm generated $69 billion in sales and employed 171,700 people in 2011.
Morningstar’s take: Boeing currently operates in a duopoly with Airbus EAD, following the acquisition of McDonnell Douglas in 1997. Though this duopoly is under threat as new competition from Bombardier BBD.B, COMAC, and others enter the single-aisle arena, Boeing's focus on innovation and its symbiotic relationship with key suppliers and customers help provide a narrow economic moat around its business and should power a high return on invested capital for years to come.
Bonds: $8.3 billion outstanding
Times interest earned: 8 times. Boeing paid $498 million in interest expenses in 2011 and they earned $4.018 billion in that same year. The interest expense is not a threat to the dividends at this time.
Preferred stock: none.
DIVIDEND RECORD: Boeing has an excellent dividend growth record. They paid a $0.08 quarterly dividend in 1987 and been able to grow the dividend to $0.44 quarterly. That is 450% straight line growth over 25 years or 18% annual straight line growth.
Dividend: $0.44 quarterly
Dividend yield: 2.52% ($1.76 annual dividend / $69.95 share price)
Dividend payout: 30% ($1.76 / $5.75 using 2011 EPS) –OR- 46% ($1.76 / $3.85 using average adjusted earning power)
EARNING POWER: $3.85 @ 749.05 million shares
(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)
EPS | Net income | Shares | Adjusted EPS | |
2005 | $3.20 | $2,572 M | 803 M | $3.43 |
2006 | $2.85 | $2,215 M | 788 M | $2.96 |
2007 | $5.28 | $4,074 M | 773 M | $5.44 |
2008 | $3.67 | $2,672 M | 729 M | $3.57 |
2009 | $1.84 | $1,312 M | 713 M | $1.75 |
2010 | $4.45 | $3,307 M | 744 M | $4.41 |
2011 | $5.34 | $4,018 M | 753 M | $5.36 |
Seven year average adjusted earnings per share is $3.85
Consider contrarian buying below $30.80 (8 times average adjusted EPS)
Consider value buying below $46.20 (12 times average adjusted EPS)
Boeing is trading at 18.2 times average adjusted EPS. This is stock is priced for investment, but it is approaching speculative territory.
Consider speculative selling above $77.00 (20 times average adjusted EPS)
BALANCE SHEET – Boeing has a very weak balance sheet.
Book value per share: $6.71 ($5.027 B total equity / 749.05 M shares)
Price to book value ratio: 10.42 (under 1.0 is good) Boeing investors are paying $10.42 for each $1.00 of book value. That is a ridiculous premium to pay.
Tangible book value per share: -$3.89 (total equity - $4.950 B in goodwill - $2.993 B in intangibles / 749.05 M shares)
Price to tangible book value: N/A Boeing’s tangible book value is a negative number.
Current ratio: 1.21 latest quarter (over 2.0 is good) ($50.131 B in current assets / $41.305 B in current liabilities)
Quick ratio: 0.25 latest quarter (over 1.0 is good) ($10.516 B in cash or equivalents / $41.305 B in current liabilities)
Debt to equity ratio: 1.75 (lower is better) You can see this in the balance sheet chart with the huge liabilities (red) compared to the small amount of equity (green)
Percentage of total assets in plant, property, and equipment: 11.72% (the higher the better) Their other assets as a percentage of total assets are: 62.5% in current assets (mostly inventories), 15.87% in other long term assets, and 9.9% in intangibles.
Working capital trend: Boeing has a nice upward trend since 2009.
CONCLUSION – The best time to buy Boeing (BA) in recent years was in February 2009. It was a value investment back then. Boeing is a steady dividend payer and grower, but the current yield is just average. If Boeing’s stock price falls back to the 2009 lows and the company keeps the current dividend, then you’ll be able to get Boeing with a 5.5% dividend yield. The company is almost speculatively priced at 18.2 times average adjusted earning power. Add Boeing to you watchlist at under $46.20. The balance sheet is weak by many measurements. Worse of all is that over 50% of Boeing’s business comes from the US government. There will be trillion dollar federal budget deficits from here to as far as the eye can see. The defense budget is going to get slashed significantly and Boeing will be hurt badly by those cuts. I’d ignore Boeing until it hits 2009 lows again.
DISCLOSURE – I don’t own Boeing (BA).
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