The Little Plane That Could- Boeing, its magical run, and future
With the stock up over 70% in the past year, you could say that Boeing is on its way to the moon, but after much autopilot, the ride is starting to get a little rocky.
Boeing as we know is the largest aerospace and defence company in the world, doing over 95 B in revenue , with a market cap of over 200 B. Boeing has been in the hot sector of aerospace, as aircraft demand is accelerating, as evident by the backlog being thicker than an old IBM computer. This backlog is almost guaranteeing them revenues, and it stretches out around 7 years currently. In the last year, that backlog has continued to grow, showing the demand for aircrafts is red hot. Even during a recession, this should keep Boeing’s earnings steady. Another thing going for it is it basically operates in a duopoly with Airbus. Both companies have massive market share, and will keep this market share as it grows. Finally, being in the defence side, they will get an uptick by President Donald “billion” Trump. Looks good right?
Now for the negatives. Boeing is a company that most certainly could get caught up in a trade war that may or may not happen, as China accounts for 20% of their backlog, and Boeing is one of the largest exporters in the USA. With their Q2 earnings due next Wednesday, we’ll get to see just how much these tariffs affected their bottom line. Another concern would be its valuation, although not bad for what you’d think of a company running up so much. Trading at near 24x next years earnings, it trades at a premium, which is how it should trade. Final thing is its balance sheet and book value, which is almost non existent after many share buy backs to boost the price. Long term it means your getting less equity for your buck, and for value seekers, this is a big turnoff.
All in all, Boeing looks like it’s settled down, so one might assume it’s time to “exit the plane” in terms of Boeing stock. However it’s far from there, with low double digit growth, good pricing power, and a growing dividend, coupled with such visible earnings, may be a good place to look if its industrials and defense you are after in your portfolio.