Boeing: Intrinsically Undervalued

Boeing (BA) is a US-based aerospace and defense company - by most measures the world’s largest. $BA has just emerged from its longest work stoppage in 13 years. This has not stopped some analysts from comparing the company to theUS automotive industry - with its significant current troubles. The company is trading toward the bottom of its 52-week range. So how does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $BA with interactive assumptions

Valuecruncher produces a valuation of US$51.29 for $BA. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 10.1% above the current share price of US$46.58.

Assumptions

• Revenue: Reuters aggregates 16 analysts covering $BA and these analysts have mean estimates of 2008 and 2009 revenues of US$68.0 billion and US$72.3 billion respectively. For our analysis we have used US$67.5 billion in 2008, US$72.0 billion in 2009 and US$75.0 billion in 2010.
• Profitability: We have used an EBITDA margin of 7.5% in 2008 rising to 8.0% in 2009. Reuters has $BA‘s EBITD margin at 7.0% last year and averaging 10.5% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$1.75 billion per annum moving forward.
• Discount Rate: 10.0%.
• Terminal Growth Rate: 2.5%.

Our analysis incorporates the cash and debt on the $BA balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say? We don’t think it appears quite as bad as others make out.

View the full BA chart at Wikinvest

Disclosure: None.

Comments

[Stephen Ros...:]

problems start with your assumptions: revenue (order cancellations in a worsening global economy) and EBITDA (BA has given up substantial wage concessions that will hit their margins).

2008 Nov 09 12:34 PM

[BerkeleyBob:]

Perhaps BA will increase significantly, but I am not getting back into it until I see the white of the Dreamliner's eyes and Boeing gets its delivery and debugging further along.

2008 Nov 09 05:27 PM

[PeteK:]

In 4 years, they will strike again !!
They had fun with it.

2008 Nov 09 11:03 PM

[FleetBuzz E...:]

...perhaps we can also move away from the ridiculous downgrades made by Goldman Sachs too - who at one time eyed $90-a-share.

Seems most brokerages like GS fail to understand that Boeing does not solely comprise of Commercial Airplanes..

2008 Nov 10 02:48 AM

[Chris B:]

Commercial air travel: worldwide contraction
Military: Iraq war ends in ~3yrs, Democratic president, govt. broke
Competition: Chinese makes and ERJ
Disadvantages: union infested, just like F and GM
Can Customers Finance Purchases?: not easily

2008 Nov 10 05:16 PM

[User 295433:]

Boeing Commercial, half of the Boeing Company's revenue stream has a current backorder of around $ 275 billion. These deliveries will be spread out over more than 8 years. The company is agressively pursuing lean priinciples to increase margins. The new models have 20% effiency gains over previous which will make the difference whether some operators stay in business. The airlines can't afford NOT to buy the airplanes. Looking forward two years in this industry you will see nothing of the true picture

2008 Nov 10 09:22 PM

[Gordon42:]

Yes, but it is not total sales that matter; rather it is profit. And there won't be much of that with Airbus squezing Boeing on price and the unions killing Boeing on cost.


On Nov 10 09:22 PM User 295433 wrote:

> Boeing Commercial, half of the Boeing Company's revenue stream has
> a current backorder of around $ 275 billion. These deliveries will
> be spread out over more than 8 years. The company is agressively
> pursuing lean priinciples to increase margins. The new models have
> 20% effiency gains over previous which will make the difference whether
> some operators stay in business. The airlines can't afford NOT to
> buy the airplanes. Looking forward two years in this industry you
> will see nothing of the true picture

2008 Nov 12 09:54 AM

[User 380785:]

Boeing wanted the strike. This allowed their over stretched outsourced work to catch up to delivery schedule. They have a 45 day delivery buffer built into sales. Notice how they came back to the bargaining table on day 46 of the strike. Hmmmm

Mar 22 02:39 PM