Is Boeing Really In Rally Mode?

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

Over the past 3 years, Boeing (NYSE: BA) has continued to lead the skies with its sales of twin aisle planes and the introduction of a carbon-fiber aircraft before competition. As a result, its net profit margin is higher than the competition. But with the introduction of the A380 and A350, European Aeronautic Defence and Space Company (NASDAQOTH: EADSY.PK) (EADS) is coming back stronger than before. If the Paris Airshow is any evidence, then EADS is catching up to Boeing – fast. In this article, we will see how Boeing performs relative to EADS and Lockheed Martin (NYSE: LMT)

Competition

The introduction of the A350 has made EADS a very interesting choice for investors, especially right now as the timing allows potential gains of the highest order. Boeing’s shares and the company itself are still pretty much in the market lead with their very healthy production line of 784s and various 777s. Lockheed Martin, on the other hand, seems set to capitalize on all of its research and spending as it starts delivering F-35 Lightning to the U.S armed forces and interested parties abroad. It’ll be a massive shot in the arm for whoever gets the South Korean contract, and it will undoubtedly be a welcome financial boost

The competition is essentially between EADS’ Eurofighter Typhoon, Boeing’s F-15 Silent Eagle, and Lockheed Martin’s F-35 Lightning. The F-35 is also widely expected to be inducted into the U.S. armed forces around to the amount of 2,400 units. However, there are doubts about the company’s ability to deliver the F-35s on time. 

<table> <thead> <tr><th> <p><strong>Indicator</strong></p> </th><th> <p><a href="http://quotes.morningstar.com/stock/ba/s?t=BA"><strong>Boeing</strong></a></p> </th><th> <p><a href="http://quotes.morningstar.com/stock/eadsy/s?t=EADSY"><strong>EADS</strong></a></p> </th><th> <p><a href="http://quotes.morningstar.com/stock/lmt/s?t=LMT"><strong>Lockheed Martin</strong></a></p> </th></tr> </thead> <tbody> <tr> <td> <p><strong>Market Cap</strong></p> </td> <td> <p>$78.2 bil</p> </td> <td> <p>$47.5 bil</p> </td> <td> <p>$34.8 bil</p> </td> </tr> <tr> <td> <p><strong>Price/Earnings ttm</strong></p> </td> <td> <p>19.3</p> </td> <td> <p>26.2</p> </td> <td> <p>12.5</p> </td> </tr> <tr> <td> <p><strong>Price/Book</strong></p> </td> <td> <p>10.5</p> </td> <td> <p>3.7</p> </td> <td> <p>113.6</p> </td> </tr> <tr> <td> <p><strong>Net Income Growth (3 Yr Avg.)</strong></p> </td> <td> <p>43.8</p> </td> <td> <p>-</p> </td> <td> <p>-3.2</p> </td> </tr> <tr> <td> <p><strong>Revenue Growth (3 Yr Avg.)</strong></p> </td> <td> <p>6.2</p> </td> <td> <p>9.7</p> </td> <td> <p>2.4</p> </td> </tr> <tr> <td> <p><strong>Dividend Yield</strong><strong>, %</strong></p> </td> <td> <p>1.80%</p> </td> <td> <p>1.05%</p> </td> <td> <p>4.11%</p> </td> </tr> <tr> <td> <p><strong>Net Margin % TTM</strong></p> </td> <td> <p>5.0</p> </td> <td> <p>2.3</p> </td> <td> <p>6.0</p> </td> </tr> <tr> <td> <p><strong>Debt/Equity</strong></p> </td> <td> <p>1.1</p> </td> <td> <p>-</p> </td> <td> <p>20.2</p> </td> </tr> <tr> <td> <p><strong>Return on Equity</strong></p> </td> <td> <p>65.4</p> </td> <td> <p>13.7</p> </td> <td> <p>302.4</p> </td> </tr> <tr> <td> <p><strong>Current Price</strong></p> </td> <td> <p><strong>$103.22</strong></p> </td> <td> <p><strong>$57.86</strong></p> </td> <td> <p><strong>$108.58</strong></p> </td> </tr> </tbody> </table>

Lockheed Martin is the most expensive stock out of its peers. More worryingly, though, the company’s operating cash flow growth and free cash flow growth were both in the negatives for 2012. Furthermore, due to the large research and development required to build military aircraft, Lockheed Martin’s debt/equity looks bloated beyond repair. However, due to the close involvement with the government in providing aerial solutions, funding is not a particular issue – unless a massively-funded project fails. At the same time, the company is offering a very attractive 4.11% yield on its stock – something none of its competitors offer.

Final words

Boeing has enjoyed a run up during the past few months, with the stock increasing 27% year-to-date. I expect Boeing to keep growing its profits due to increasing demand for commercial and space flights. EADS will eventually occupy a bigger share of the commercial airplane market and come closer to Boeing. However, it is hard to imagine how Boeing will allow itself to lose its market position. With 100 years of experience Boeing will investigate new concepts and markets and keep competing with fast growers like EADS. 

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.


Marina Avilkina has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. 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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