Recent issues concerning failed engines and batteries of Boeing Co. (NYSE:BA) Dreamliner 787s have raised investor concerns. However, despite these negative issues surrounding Boeing, the share price has held up and is, in fact, outpacing that of many of its rivals. The question that currently plagues investors is: can the company sustain the share price growth amidst these technical issues brought on by the Dreamliners?
As mentioned, the company has been facing technical issues related to its planes and, since that time, the stock price has been stagnant. It's worth mentioning that in the past six months, Boeing has demonstrated the highest price appreciation (around 40%) relative to its major rivals Lockheed Martin (NYSE:LMT), TransDigm Group (NYSE:TDG), and United Technologies (NYSE:UTX), which garnered changes of 39.50%, -8.22%, and 17% respectively.
EPS diluted quarterly growth (as shown below) shows that Boeing has the second-highest growth at 18.03% for the first quarter, beating its rival Lockheed Martin and TransDigm Group, which were at 14.78% and -17.22% respectively.
Recent growth projects and obstacles
Boeing recently received a number of engine problem complaints from Japanese Airlines and ANA for its Dreamliner 787 after returning to commercial service just last month. These problems were in addition to the issues concerning lithium-ion batteries that were overheating, which resulted in the company's aircraft being grounded for four months. As you will recall, the company responded back by redesigning the battery to include more protection around individual cells to contain any overheating, added a steel case to prevent fire and a tube that would vent any fumes outside the fuselage.
This new issue is another blow to the company's reputation as it has not yet fully recovered from the battery issues. On the other hand, a tangential benefit of recognizing aircraft issues early is that it decreases the risk of bigger, potentially more costly, expenses down the road.
In more positive news, revenue growth has the potential to increase as Monarch Airlines Ltd. is considering ordering as many as 62 single-aisle jetliners by the end of September. Moreover, the company is embarking to increase its market share in the growing Drone industry through its Phantom Eye, which has the capability to fly for up to four days carrying 450 pounds and can relay information from a distance of 400-nautical-miles (line-of-sight). Last month alone, the company delivered seven 787 Dreamliners and is expected to top 60 this year.
Financial Ratios and Analysis
Revenue growth is currently at -2.53%, which is significantly lower than the industry's average of 4.3% implying that the company is losing its market share.
EBITDA margin is at around 10% in the second quarter of this year, which is slightly lower by .98% in the same period of last year. Higher EBITDA margin translates into more profit for the company since lesser operating expenses are eating out the company's bottom line.
Higher revenue growth combined with higher EBITDA margin is a great indicator as it reflects more profit and increasing demand for the company's products.
Meanwhile some of the company's major competitors such as Lockheed Martin, TransDigm Group, and United Technologies are showing mixed results in revenue growth of -1.98%, 9.95%, and 15.97% respectively. EBITDA margins are higher than Boeing, coming in at 11.77%, 45.56%, and 15.21% respectively, which translates into more profit for the competitors since lesser operating expenses are eating out their company's bottom line.
However, net Income for the period increased to $1,106 million from $923 million posted in the same period last year. This is an increase of 19.83% despite a decline in revenue indicating the company's ability to manage its operating expenses.
A debt-to-capital ratio at 1.23 is still below the industry's average, suggesting that its debt is at acceptable levels within the industry. The quick ratio is currently at .41 while the current ratio is at .77; signifying that the company may have some concerns in covering its short-term needs.
Operating margin declined to 7.83%, a slight decrease of 2.25% from its previous record of 8.01% in the same period of last year.
The P/E ratio is currently around 18, which is at par with the industry average of 20; showing that it's currently sold at a fairly modest price. On the other hand, Price to Earnings/ Growth (PEG ratio) is at .72 versus the industry's 1.30.
Price to Book is currently at 10.39% significantly below the industry's average of 23.51% signifying that it's currently trading at a discount.
Earnings growth is also lower at 7.22 versus the industry's 4.98, a significant difference indicating slower growth.
ROE is robust at 66.5 and is better than the industry's average of 22.4%.
Despite some of the issues mentioned, I would recommend buying Boeing Co. for several reasons. Significantly, its earnings per share diluted quarterly growth is the highest among its rivals, indicating greater earnings potential for investors. In addition, Boeing's order book has been strong and, despite the issues with the Dreamliner, should continue to hold up. The dividend yield is at a respectable 1.6%, and is not likely to be cut anytime soon. Boeing is a solid company which, with a beta of .91, adds stability to a portfolio.