The Boeing Company: Positive Gains Around the Corner

The aviation industry has been struggling over the last year with the major American airlines down as much as 70% in value. The high price in oil combined with the weakening US economy which has led to a slow down in passenger numbers has continued to provide a gloomy out look for airlines, although this will not be a long term factor.

Now you would assume this devaluation of airline stock would affect companies such as Boeing (BA). Boeing dropped 43.3% from the October 2007 high of $107.15 and reached its 52 week low of $60.77 on August 2 and then rallied to $67.86 (August 8 close).

Historically, Boeing has provided a 113% return within the last five years, 16.32% annualized and often outperforms the market. With an EPS rate of 5.55, forecast growth rate of 11.50% over the next 3-5 years and a PEG ratio of 0.34 shows that the stock price has got room to grow. Furthermore, the current stock price of $67.86 is considerable lower then the fair value price of $104.63 which makes Boeing a good buy. One downside to Boeing is that it has a very high debt to equity ratio of 94.90%. Although there is cash flow of $8.75 a share and a cash and cash equivalent of 9.3 billion.

Since we are not going to go back to using cruise ships for international travel, airlines will eventually have to trade up their old gas guzzling fleet for more fuel efficient aircraft such as Boeing’s 787 models. This makes good economic sense as the 787 is 20% - 30% more fuel efficient then previous models and will have a smaller carbon footprint.

On the competitive front, Boeing is part of a global duopoly with Airbus being its major competitor. There might be some further volatility in the interim as bulls and bears are in a mild disagreement as to who is more dominant, but in the long run the stock should provide some good returns when the market starts to move positive.

Disclosure: Author holds a long position in BA

Comments

[WEBISKING:]

I bought this at 62 and belive it is a great entry point.Used the january 2010 30 calls to do it.Ba should do great

2008 Aug 12 04:40 PM

[notsosmart:]

be careful-here comes china.in planes,in cars,in motorcycles,in trains.

2008 Aug 12 10:22 PM