Boeing (NYSE:BA) has lagged the Dow Jones Industrial Average for the past year. The Dow is up 8.92% from February 2012, while Boeing is down 1.93% from last February. However, this pattern will likely not continue in 2013. The Dow recently touched the psychologically important 14,000 mark. Many economists are optimistic about the future of the U.S. economy. The bullishness that currently exists about cyclical stocks will help Boeing to outperform the Dow this year. Boeing is a cyclical stock and marcoeconomic conditions can strongly impact its performance. Boeing has lagged the market in the past year because of a weak macroeconomic environment and concerns about its new 787 Dreamliner. Despite the recent downtrend, Boeing will begin to outperform the Dow because global growth isn't as bad as previously thought and the Dreamliner concerns are being dealt with.
Since the start of 2013, industrial companies have rallied. Caterpillar (NYSE:CAT) is up nearly 5% YTD and Deere & Company (NYSE:DE) is up 7.57% YTD. Boeing has been left out of this cyclical stock rally because of problems with its new 787 Dreamliner. The aircraft has been plagued by problems with its lithium-ion batteries. On January 16, the Federal Aviation Administration decided to ground all 787 in the U.S. and the Japanese aviation agency has taken similar action. Both agencies decided to ground the planes because of issues with the lithium ion batteries. However, Boeing addressed these concerns in its Q4 2012 conference call. Jim McNerney said in the conference call that the company is making great progress in narrowing down the potential cause of the events. Despite the bad news, Boeing remains confident about the aircraft and production is continuing as planned. Japan Airlines announced on February 4 that they still have faith in the 787 and the planes will remain at the center of the airliners strategy. Boeing plans to begin production of a stretched version of 787 even though the investigation into the 787 lithium-ion battery fire is not over. The news appears to be devastating for Boeing, but it actually isn't that bad. Boeing employees have been working tirelessly to find a cause of the battery problem and the problem will eventually be resolved. Meanwhile, the production of the 787 will carry on.
Concerns about global growth held the stock back during much of 2012. Many feared that slow growth would hold Boeing back last year. Despite the weak macroeconomic environment that was seen last year, the company stated in conference call that it delivered the second most number of commercial airplanes in 2012. Corporate economists currently have a rosy view of 2013. According to the survey, 50% of those polled say that the economy will advance at a 2.1% pace or better over the next four quarters. That number is up from 36% in October. Boeing has managed to thrive even in a weak marcoeconomic environment. If macroeconomic growth was to pick up like the corporate economists are predicting, then the stock could rally because of its cyclical nature.
The stock has strong fundamentals. As shown in the graph below TTM revenue as grown considerably over the past. Year over year quarterly revenue grew at a rate of 14% The TTM P/E at is higher than the industry average at 14.73, although it is still lower than average P/E ratio of an S&P 500 company. The growth rate for 2013 is expected to be 5.94% and the growth rate for 2014 will soar to 20.48%. The forward P/E ratio is 10.32, which is below the current P/E ratio of 14.73. The price to sales ratio is low at .69 and the PEG ratio is 1. The dividend is currently 2.6%, which is certainly higher than many investments. The yield for the stock has been above 2% for the past five years and the payout ratio is 34%. The company's leveraged free cash flow is 2.37 billion.
Source: data from Yahoo! Finance
Source: chart from Y Charts
Boeing has great fundamentals, yet the stock has underperformed lately. Marcoeconomic growth concerns and problems with the 787 Dreamliner are two of the reasons that this stock has failed to reach its full potential. The company reported an outstanding fourth quarter recently, yet the stock is being held back by 787 Dreamliner. The Dreamliner battery problems are a short term issue and they will likely not affect the company over the long run. 2013 will be a great year for earnings growth and 2014 will be even better year for the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.