Is Boeing More Attractive Than Its Peers?

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Boeing (NYSE: BA) has been a steady winner for decades. And despite recent safety issues related to lithium batteries on its 787 Dreamliner, Boeing's stock has still risen 36.70% over the past year, eclipsing peers such as Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). Why is that the case? And is there a much bigger threat to Boeing’s long-term potential?

Boeing vs. Airbus

Boeing’s biggest competitor is Airbus. These two companies have been duking it out for years, and the rivalry will only intensify going forward. Boeing has the 787 Dreamliner, and Airbus has the A350 XWB. Both are attractive because of their fuel efficiency. However, the A350 XWB is 6% more fuel efficient than the 787 Dreamliner.

Airbus doesn’t want to immediately make the switch to lithium batteries, due to recent negative press and safety concerns. However, rumors suggest that the company does wants to make that switch in the future. 

According to Boeing Commercial Airplanes CEO Ray Conner, Boeing accomplished three years of work in just three months after the lithium battery incidents, with no slowdown in other production efforts. This hungry attitude demonstrates what Boeing is capable of with its back against the wall.

Furthermore, Boeing has a counterpunch to Airbus with its 787-10X. This expanded Dreamliner will have more seats, letting carriers increase passengers -- and profits -- per flight. Singapore Airlines, British Airways, and Air Lease Corp have already expressed interest in the new model.

Cost also plays a role when it comes to demand. A 787 Dreamliner costs as little as $206 million, whereas a A350 XWB starts at $254 million. This is important considering the current economic environment. Potential buyers are likely looking to cut costs in every way possible. 

All factors considered, this doesn’t come down to one company defeating the other. The truth is that both are well-run companies with bright futures. The biggest threat for these companies isn’t each other, but the weak global economy.

Boeing vs. Lockheed Martin and Northrop Grumman

Lockheed Martin and Northrop Grumman are going to be more affected by shrinking government budgets than Boeing, because they get more of their money from defense contracts. Boeing has an enormous backlog for aircraft, much of which comes from China, and replacement demand in developed markets is high.

The chart below shows how close all three companies are when it comes to valuation and efficiency. However, one company falls short when it comes to dividend yield. 

<table> <thead> <tr><th> </th><th> <p>Forward P/E</p> </th><th> <p>Profit Margin</p> </th><th> <p>Dividend Yield</p> </th></tr> </thead> <tbody> <tr> <td> <p>Boeing</p> </td> <td> <p>          14.27</p> </td> <td> <p>          5.03%</p> </td> <td> <p>          1.90%</p> </td> </tr> <tr> <td> <p>Lockheed Martin</p> </td> <td> <p>          12.03</p> </td> <td> <p>          6.04%</p> </td> <td> <p>          4.30%</p> </td> </tr> <tr> <td> <p>Northrop Grumman</p> </td> <td> <p>          11.05</p> </td> <td> <p>          7.81%</p> </td> <td> <p>          2.90%</p> </td> </tr> </tbody> </table>

Based on these numbers, it would seem as though Boeing is the worst investment option of the three, but that’s not likely to be the case. Sometimes, short positions can also tell an important story.

For instance, the short position on Boeing is just 1.40%, whereas the short position on Lockheed Martin is 3.70%, and the short position on Northrop Grumman is 3.50%. Boeing likely owes its lower short interest to relatively lower dependence on government spending and high demand for commercial aircraft. 

Conclusion

Boeing has grown revenue for two consecutive years. However, last quarter its revenue declined 2.5% year over year. If Boeing runs into top-line growth problems, it won’t hesitate to cut costs and return more capital to shareholders. This is potentially bad news for employees, but it’s good news for investors.

As stated above, Boeing has been a steady winner for decades, but it should be pointed out that Boeing isn’t resilient in bear markets. For example, Boeing dropped approximately 60% during the financial crisis of 2008/2009, whereas the S&P 500 dropped approximately 50%.

The good news is that Boeing is in a stronger position now than it was several years ago, and the stock has always eventually recouped losses and gone on to make new highs after a difficult stretch. Due to a slow-growth economy, turbulence is likely at some point over the next several years, but Boeing is a long-term winner.

Boeing operates as a major player in a multi-trillion-dollar market in which the opportunities and responsibilities are absolutely massive. However, emerging competitors and the company's execution problems have investors wondering whether Boeing will live up to its shareholder responsibilities. The Fool's premium research report on the company provides investors with the must-know issues surrounding Boeing. They'll be updating the report as key news hits, so don't miss out — simply click here now to claim your copy today.


Dan Moskowitz has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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