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Diversified business model may provide Boeing some lift

|Includes:The Boeing Company (BA)

Guest Analyst: Tim Biggam, TradingBlock  (August 16, 2011, 3:07pm CDT)

Symbol Analyst Target Price Target Date
BA $68.00 Dec. 16, 2011

The Boeing Company (ticker: BA) is an aerospace company engaged in the design, development, manufacture, sale and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. Boeing operates in five segments: Commercial Airplanes, Boeing Military Aircraft (NYSE:BMA), Network & Space Systems (N&SS), Global Services & Support (GS&S), and Boeing Capital Corporation (NYSE:BCC).

For Q1 of 2011, Boeing's revenues decreased 2% to $14.91B with net income from continuing operations increasing 13% to $588M. The decrease in top-line revenue reflects a slowdown in commercial airplane sales, a fall in total Boeing defense, space & security business, and decreased revenue from Boeing Capital Corporation.

BA is trading at a trough P/E multiple of 13.3, a slight discount to the overall market. Boeing also sports a nifty dividend yield of 2.7%, which is at a premium to the 10-year Treasury. While defense spending cuts will certainly hamper growth going forward, the recent 30% drop in the shares from the early May highs may be overdone, especially given Boeing’s broader business model. Additionally, BA has numerous commercial contracts in the pipeline that will produce a steady revenue stream over the next several years.

Technically, BA held the 60-support level, bouncing sharply off that base. Given the relatively cheap valuation, high yield, and solid (albeit tempered) growth prospects, we look for BA to move to the 68 level by year end.

Play of the Day

Based on The Boeing Company's (ticker: BA) current market price of $62.23 and using a target price of $68.00, a target date of December 16, 2011 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Jan Call Spread +50% 51%
Sell Feb Iron Condor +43% 49%
Sell Jan Put Spread +39% 58%
Buy Stock +9% 57%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.

Stocks: BA