Boeing to Announce Dividend Increase and New Share Repurchase Plan



The Boeing Company (BA, $135.18) is the world’s largest manufacturer of commercial jets and the second largest military weapons maker.

I last wrote about Boeing in early Junesaying, “With a record backlog of 800 Dreamliner orders to fill, Boeing Company’s production pace will necessarily ramp up dramatically over the next few years.  The company intends to use 80% of the increased free cash flow towards dividends and share repurchases, which provides tremendous shareholder value.”

Morgan Stanley reported this weekend that Boeing will likely announce a dividend increase and a new share buyback authorization on December 9 or 16.  “We expect BA’s board to approve a meaningful increase in buyback authority – a key catalyst prior to year-end. We model ~$3 billion in 2014 buybacks and consider this conservative.”

Boeing had a huge jump to record revenues of $81.7 billion in 2012, with near-record net income of $3.9 billion.  Standard & Poor’s (S&P) expects revenue to rise 4% in 2013 and 9% in 2014, led by gains in Commercial Airplanes, and slight decreases in Defense, Space & Security; and operating margins to rise approximately 0.7% to 8.4% in 2014.

Wall Street expects Boeing’s earnings per share (EPS) to grow 32%, 12% and 10% in 2013 through 2015.  The PE is 18.0 and the dividend yield is 1.44%.

S&P gives Boeing shares a Qualitative Risk Assessment of “Medium”.  “Our risk assessment reflects BA’s participation in highly cyclical, very competitive and capital-intensive businesses, offset by its long-term government contracts and our view of its solid cash position, typically strong free cash flow generation, and healthy backlog of business.”  S&P gives BA a Four-Star Buy rating and a 12-month price target of $156.

In June, I said, “There’s plenty of time to wait for the share price to correct to $90 before accumulating shares.”  The stock stayed in a trading range for three more months, and has since risen 33%.

On Nov. 18, when the share price was $136.08, Morgan Stanley reported, “We continue to argue that BA’s momentum will continue from here on the simple notion that when everything else is going in the stock’s favor, valuation is not yet prohibitive enough to in itself justify a bearish view. Signs of a strong 777X launch, a backdrop of favorable new order seasonality through [year-end], an upcoming increase to the company’s buyback authorization, robust global traffic growth, and signs across airlines & aircraft lessors that trends are accelerating not decelerating all keep us [Overweight] BA.”  

I think that’s a good assessment; it’s just that the Goodfellow LLC investment criteria place an emphasis on stock price growth combined with minimizing risk.  Boeing shares do not meet my buy-recommendation criteria because of the company’s high debt levels (long-term debt ratio 55%) and slow future projected earnings growth.

The stock price continues to reach new highs — up 77% year-to-date — currently in a short-term trading range of $129-$142.  There is additional short-term price support at $120.  If I owned the stock, I would continue to hold my shares, and use stop loss orders.  If I were intent on buying shares, I would wait for a market correction to take the price down to $120.  But realistically, the stock is currently overvalued and the chart is overextended.  There are plenty of growth stocks out there with higher earnings growth rates and lower PEs than Boeing.

Goodfellow LLC Rating:  Hold, Growth & Income, Public.  (12-08-13)

BA 12-08-13

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Happy investing!


Crista Huff


Goodfellow LLC

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