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Boeing Price Appreciation & Tax Reform

|Includes: The Boeing Company (BA)

Boeing share price lift off.

Simple Tax reform and bottom line.

Financial Repression and Yield at any cost.

Boeing has truly had a lift off year. With a current market capitalisation of $165.55 billion, increasing from $98.1 billion at the beginning of 2017. The stock price began 2017 at $159 per share, and is currently at $278 per share. Approximately 22 million shares have been purchased during this period (share buybacks the predominant method for returning cash to shareholders).

Boeing EBIT for the last 12 quarters has averaged 1.817 Billion per quarter, with an average income tax expense of 414 Million per quarter, an effective tax rate of 22.78%. However, for the benefit of this summary, lets assume a tax rate of 30%.Based on 30%, the annual tax expense would be 2.18 billion. At 20 %, the annual tax expense would be 1.45 billion. An increase in net income of 0.73 billion. Given the period chosen includes no periods of recession which would substantially increase the likelihood of reduced EBIT, the increase in market capitalisation of $67.45 billion vastly exceeds the benefits to boeing from the potential reduction in the corporate tax rate.

Given US yields have increased, albeit slowly, over the proceeding years, financial repression holds less weight from a US perspective. However this reasoning does not apply when once considers the yields on other developed world debt, especially Japanese and European Debt. In summary, momentum leading to price appreciation, increasing risk appetite, alongside global repression in yields has led to the surge in Boeing's market capitalisation, far in excess of the fundamental merits. This is a much more speculative holding. 

Feedback is welcome.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.