Will This Company Soar Above the Market?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off a solid third quarter earnings report, I would like to pinpoint on a member of the Dow 30: Boeing (NYSE: BA).  

Strengths:

  • Solid Revenue Growth: In 2007, Boeing reported revenue of $66.4 billion; in 2011 the company reported revenue of $68.7 billion, representing year over year annual growth of 0.85%, a slow but solid rate; however, growth is expected to accelerate into the future, with projections putting 2014 revenue at $92.8 billion
  • Dividend: Currently the company pays out quarterly dividends of $0.44, which when annualized puts the dividend as yielding 2.49%, well north of any rate that can be found in a CD or treasury bond
  • Growing Backlog: As of the end of 2011, the company had $355.4 billion in total backlog, up from $327.1 billion in 2007, which provides Boeing with a predictable future as they work towards filling these orders
  • High Barrier to Entry: The process of manufacturing an airplane is a complicated and multi-step process, requiring thousands of parts and suppliers, and Boeing has a huge advantage over other companies as they are already established and operate a well-oiled machine   

Weaknesses:

  • Debt: Boeing currently possesses around $548 million of debt on its balance sheets, and paying this off is a key to the company’s future success
  • Minuscule Margins: Boeing possesses a net profit margin of only 5.84%, not leaving much room for rising operating costs
  • Pricy Valuation: The company appears relatively fairly valued in the price to earnings and price to sales ratios; however, the price to book ratio is 14.99, displaying a company that is vastly overvalued regarding this metric  

Opportunities:

  • Dividend Growth: Since implementing their dividend program, Boeing has consistently raised their quarterly payouts, from $0.10 in 1990, to $0.44 currently, and further growth is highly anticipated
  • Capturing Commercial Contracts: The company’s new 787 Dreamliner has attracted hundreds of contracts from airline companies because of the 787’s fuel efficiency and improved design (The company is currently producing 5 planes per month, and by the end of 2013 is expected to be producing 10 planes per month)
  • Product Innovation: Boeing has consistently proven in its past that the company is capable of adapting to a changing market, and the company possesses a proven track record of innovation (most recently the 787) and further innovation is probable
  • Military Growth: In December 2011, Saudi Arabia signed an agreement for 84 new and 70 upgraded F-15s, and further expansion in the military segment of their business is probable as tensions in the Middle East heighten with each passing day
  • Space: In July 2011, the final space shuttle mission was completed, but there is still opportunity for Boeing to win billion dollar contracts from NASA for its unmanned space flights  

Threats:

  • The United States Fiscal Cliff: If politicians are not able to reach a deal by 2013, automatic spending cuts will go into effect, including a $109 billion cut in domestic and military spending, which could severely hurt Boeing’s business  
  • Competition: While Boeing’s industry is not one of the most competitive in the world because of the great complexity of the process, there are major players in the industry that compete with Boeing to offer the best product for the lowest price
  • Supplier Problems: As the world has seen with Apple and Foxconn most recently, problems with a supplier of a specific part can hold up the entire manufacturing process, and because Boeing has hundreds of supplier, there are hundreds of chances for things to go wrong
  • Rising Fuel Prices: If fuel prices were to further rise into the future, airline companies would have less money to spend on purchasing new airplanes

Competitors:

Major publicly-traded competitors of Boeing include Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC). Lockheed Martin is a global security and aerospace company, and competes directly with Boeing. Lockheed Martin pays out a dividend yielding over 5%, and valued at only about $28.6 billion, about half of Boeing’s market capitalization. Northrop also operates in the aerospace arena and competes with Boeing and Lockheed Martin. Northrop pays out a dividend yielding just north of 3%, and carries a value of $15.6 billion.  

The Foolish Bottom Line:

Boeing possesses several strengths, weaknesses, opportunities, and threats; however, in the end it appears to be a financially strong company with a stable future. The company’s consistent product innovation will fuel future growth, but major roadblocks face Boeing’s core business. Even if a deal is reached, there are still expected to be major military cuts as part of the package to prevent the United States from falling off the fiscal cliff, causing the company to focus more and more on its commercial segment. The foolish bottom line is that Boeing is one of the most financially solid companies in the Dow Jones Industrial Average, and should prosper in the coming decades, but in the short-term will face some major volatility.  


makinmoney2424 has no positions in the stocks mentioned above. 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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