Boeing Shares Are In A Tailspin

| About: The Boeing (BA)

Summary

The stock is down 12.5% for the past three months while the S&P 500 is down 7.4%.

The stock however is trading inexpensively based on next year's earnings estimates but those estimates may come down soon.

I believe the stock offers value below $136 but I would layer into a position.

There's lots of news surrounding Boeing (NYSE:BA) these days with the stock having the potential to drop on the news that they are cutting back the production rate of their 747 fleet.

It's not the entire fleet that's getting axed, but just the 747-8 portion of the fleet. The production rate is getting cut in half, down to six a year which is to take place later in the year and will result in a charge of $569 million for the fourth quarter after taxes which will be equivalent to $0.84 per share.

The 747-8 is produced for both the passenger side of the business and the freight side of the business, but the weakness being experienced is on the freight side. Boeing has twenty orders that have been booked for the 747-8 series of planes. The company cited the fact that global shipping volumes were down 1.2% November which had an impact on the decision. On the flip side passenger traffic grew to the tune of 5.9%.

This freight issue that is taking place has me thinking that there is a broader macroeconomic issue taking place, and that it is not just a Boeing specific story. Don't forget that it was just probably a couple of months ago that Delta CEO Richard Anderson stated that there was glut of wide body planes which sent shares of Boeing downwards. So not only did Boeing take it on the chin from the passenger side, but not it is taking a hit on the cargo side. Since that time in mid October the stock is down 12.53% against a drop of 7.4% on the S&P 500. But it is very important to state that the cargo side of the house amounts to a very small portion of the company's revenue stream.

Even though it is a small portion of Boeing's portfolio, I'm more concerned about the macroeconomic affects that are taking place. The entire transport complex has been disastrous for a very long time, just take a look at Union Pacific (NYSE:UNP), it is down nearly 24% in the same timeframe that Boeing was down 12.53%. Boeing has broken all support levels now and appears to be in a tailspin.

The company currently trades at a trailing 12-month P/E ratio of 15.5, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.1 is currently inexpensively priced for the future in terms of the right here, right now. I consider anything with a P/E value below 15 to be worthy of a buying opportunity. Next year's estimated earnings are $9.42 per share and I'd consider the stock inexpensive until about $141. The 1-year PEG ratio (1.08), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 14.33%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 14.33%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.53% with a payout ratio of 55% of trailing 12-month earnings while sporting return on assets, equity and investment values of 5.7%, 75.9%, and 32.6%, respectively, which are all respectable values.

The really high return on equity value (75.9%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. On this metric I consider anything above 30% to be great.

The really high return on investment value (32.6%) is an important financial metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI then the investment should not be made. From this perspective I like companies that make above 25% return on their investments.

Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.53% yield of this company is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past four years. I do believe that the stock offers value below $136 which is the midway point of the 52-week range.

As for me, I have a 14.7% loss in my current Boeing holding and am fine with it. I'm fine with it because I never go full bore and buy my entire position at once. I always layer in, and I layer in on a weekly basis. I am able to do it on a weekly basis because I've been grandfathered in on an old plan from my broker. It's a great deal.

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long BA, UNP.

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.