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DCF Analysis Reveals Boeing Is Undervalued, Fair Value: $115

Discounted cash flow analysis suggests that shares of Boeing (NYSE:BA) are priced at a discount to fair value. The analysis supports a price target of $115.01 on Boeing; shares currently trade at $106.27. Current market price represents an opportunity to buy Boeing at an 8.224% discount to fair value, as the stock currently trades over 8 points below intrinsic value, relative to future cash flow, and profitability. A target price of $115.01 is based on the estimates shown in the chart below.

Earnings Per Share6.52
10 Year Growth Rate12.88%
Terminal Growth Rate2%
Years of Terminal Growth5
Discount Rate9.29%

These conservative input values reflect current estimates for the year 2013, ending in December. A terminal growth rate of 2% accounts for current inflation, were inflation to rise to 3%, the fair value of Boeing would increase to $116.05. If inflation reaches 4%, $117.13. A discount rate of 9.29% is applied in order to replicate the total return of the S&P 500 (NYSEARCA:SPY) TTM. The chart below compares Boeing to the S&P 500, over a 1-year period.

(click to enlarge)BA_SPY

The Present Value of Boeing Is Less Than The Growth Value of Future Cash Flows.

The 10-year growth rate estimate of 12.88%, used in DCF calculation, is further validated in the results of reverse-DCF analysis. Boeing's current share price of $106.27 necessitates a cash flow growth rate of 11.48% in order to be justifiable. Boeing has grown free cash flow by 31.1% TTM, and by 37.10% over a 10-year period. This divergence, between free cash flow needed to justify present value, and real cash flow growth, strongly indicates that Boeing is undervalued.

BA Free Cash Flow Chart

Strong Revenue Growth

Over a 10-year period, earnings growth increased 14%, revenue growth increased 5.8%, and EBITDA growth increased 13.9%. In that the estimated 12.88% 10 year, forward growth rate is 1.12% less than Boeing's 14% earnings growth rate over the past 10 years, Boeing can be bought, at present value, discounted to the value of future growth and revenue streams. Revenue growth is shown over a 10-year period on the chart below.

BA Revenue Quarterly Chart

A history of robust growth, an undervalued share price relative to fair value, and significant growth value projections make Boeing an excellent long opportunity.

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. I have no business relationship with any company whose stock is mentioned in this article.