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Using a Value Line Report: Boeing in Space – March 16, 2012
Boeing (BA – Free Value Line Research Report for Boeing) is one of only a few major aerospace and defense companies around the world. Its products, from commercial aircraft like the iconic 747 to military jets like the similarly famous F-15, are, in many cases, household names and workhorses in the industries it serves. The Business Description provides an extended list of products and services the company offers, but it wouldn’t be exaggerating the truth to say that Boeing’s reach extends worldwide—and then some.
Of note, one of the biggest projects in the company’s history, the 787 Dreamliner, has finally been completed. Perhaps it is a case of too much hype and too many delays, which is not uncommon when building a new aircraft, but the response from the market and the world has been something closer to “ho-hum” than one might have desired. Add to this the very real potential for Boeing to be hit by military spending cuts in the United States, and it’s understandable that the shares have been range bound for the last couple of years.
A quick review of the Graph shows that the shares have roughly bounced around between $60 and $80 since recovering from a steep plunge during the recession. As the Graph shows, the 2007 to 2009 recession wasn’t kind to Boeing shareholders, with the issue dropping from a high of about $107 per share in 2007 to a low of $29 in early 2009. (The high and low prices for each year are displayed atop the Graph.)
Of course, Boeing sells products to many more customers than just the U.S. government. As the Analyst Commentary notes, the commercial side of the business appears to be doing reasonably well. Note, too, that foreign sales make up about half the overall business (a fact included in the Business Description), so even if there are U.S. military spending cuts, the magnitude of the impact may not be as dire as some expect—not to mention there is no way at the present time to figure out what is going to be cut.
So where does the aerospace giant stand today? As noted in the Analyst Commentary, it has a $293 billion backlog on the commercial side. Since its products are large, costly, and time consuming to make, the order docket can stretch years in to the future—providing at least a little clarity into possible future performance. Basically, the company will be around no matter what happens to the military side.
Add to this the company’s Financial Strength Rating of A+ (the second best Value Line category and found in the Ratings box), over $11 billion of cash on the balance sheet (found in the Current Position box), and reasonable debt levels (found in the Capital Structure box) based on the types of product it produces, and the company appears well positioned for the future.
So the company is clearly positioned to weather whatever cuts may come about in the U.S. military budget. What about the longer-term? What about aspirations? That’s where NASA comes in.
Although not a huge part of Boeing’s business, the company’s Network& Space Systems Segment is “engaged in the research, development, production and modification of products and services to assist our customers in transforming their operations through network integration, information, intelligence and surveillance systems, communications, architectures and space exploration.” This is a mouthful and includes a host of items that aren’t directly related to exploring the great beyond, but the list ultimately includes products ranging from satellites to supporting the International Space Station. The segment produced about 15% of 2010 revenues.
What’s the future here? For the dreamers out there, the sky is literally the limit! The U.S. government (through NASA) has been pushing for commercial development of vehicles that are capable of delivering people and cargo to space, and there are companies that are looking to create “airlines” for recreational space travel. It isn’t much of a stretch to believe that Boeing, which already has its foot in the door, will be intimately involved in whatever space business evolves.
Moreover, for a company as large as Boeing, buying a larger portion of market share, should that aspect of the aerospace industry start to take off, wouldn’t be difficult to accomplish. Moreover, it is hard to imagine that one of the world’s largest aircraft manufacturers would simply forgo building consumer spacecraft if the market evolves. In the meantime, however, Boeing still has a real business to support it while the space market comes to fruition.
So while a company like Orbital Sciences (ORB) is a more direct play of the future of space, it doesn’t have the size or scope that Boeing does. Nor does it have the diversification. Sure, you can look at Boeing as it is today, worry about the military cuts, and make an investment decision. For those with bigger dreams, dreams that go beyond this planet, however, Boeing is an interesting investment option.
Moreover, while waiting for Star Trek to become reality, you can collect Boeing’s recently increased dividend—which provides a 2.4% dividend yield. That’s near the high end of the company’s historical range—for those with more terrestrial investing constraints.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.