Boeing's future looks rich for investors
Dividend hike and share-buyback plan signal confidence after a year marked by repeated Dreamliner woes but big gains for its stock.
Boeing's big dividend hike and $10 billion share-repurchase plan convey an important message: The airplane maker expects strong cash flow in the years ahead.
The announcements from Boeing (BA) late Monday "reflect sustained, strong operational performance by our businesses, increasing cash flow, and our confidence in the future," said Chief Executive Jim McNerney in a prepared release.
Boeing can repurchase up to $10 billion in stock over the next two to three years, starting in January, with its new authorization. This includes about $800 million in share repurchases remaining from a 2007 plan.
Graphic: Is the Dreamliner back on course?
In addition, Boeing said it would boost its quarterly dividend by 50% to 73 cents per share from 49 cents. It will be payable in the first quarter of 2014, for shareholders of record as of Valentine's Day.
Boeing's yield is now 2.14%.
Shares flying high
The shares rose more than 1% to $136.41 Tuesday on the news, though it gave some of that back Wednesday. This year, Boeing stock has shot to the moon, up 75%, or nearly triple the performance of the broader market. But we wouldn't bet against the stock, given the magnitude of planned repurchases and strength of its order cycle, especially commercial aircraft.
The average price target among analysts is around $150. On Tuesday, several reiterated targets at or above $160, a price that implies upside of nearly 20%.
To be sure, the stock is not cheap. It trades at about 18 times estimated earnings of $7.53 per share for 2014. That's a premium to the market multiple, and to Boeing's projected earnings growth of about 12%. But a premium looks warranted at this stage of Boeing's profit cycle, given several years of visibility on free cash flow.
Boeing had $15.9 billion in cash and $9.5 billion in debt on its balance sheet at the end of the third quarter. Sterne Agee analyst Peter Arment is looking for 2014 free cash flow of $7 billion, with $8.6 billion in 2015, and $11.9 billion in 2016. He thinks Boeing could reduce its share count by more than 5% through share repurchases, including employee options.
"This outlook gives Boeing tremendous dry powder to continue to invest in derivative aircraft programs, make niche acquisitions, shore up pension obligations, and have flexibility for a continuous buyback program," Arment writes.
Barrons.com has been bullish on Boeing, saying that despite problems with the Dreamliner, Boeing's commercial business looked strong.
Are the problems over?
Of course, any slipups in design or delivery of new planes could hurt the stock. Battery problems grounded some new 787 Dreamliners earlier this year. The wide-body plane -- designed for fuel efficiency -- made more headlines in November following icing issues in some General Electric (GE) engines.
In addition, in the war for market share with Airbus, Boeing can't sacrifice too much on price. It has been accused of being desperate to regain share in the re-engined narrow-body sector, and it has been aggressive on pricing as a result, according to RBC Capital Markets research.
But it appears shares of Boeing could still fly higher.
Related at Barron's:
VIDEO ON MSN MONEY
You do me to say Obama's sequestration, right. After all the facts, and some of care about facts, is that Obama suggested the sequestration deal. You do know this, right. Oh, wait I think you are a liberal and liberals want what they want because they want it and it is no different with facts, they what the facts they want so they make them up and then sell them.
Of course it also matters, as much as the left would like to place blame elsewhere (so typical as to be their only game) ... It also matters that as part of the sequester deal prior to it taking affect had every opportunity to meet the spending cut requirements in any form they wished. But the facts are that they did not want to make any cuts, and preferred to let the SEQUESTATION cuts go through as IS, then blame the Republicans.
Is anyone really going to deny that the Democrats could have offered alterative cuts? Really? Anyone that much of a hack or that ignorant? Anyone?
This is hard to believe that Boeing's future looks so good with the Republican "Sequestration" program. Something is wrong with this picture.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Warren Buffett is known for buying stocks cheap and holding them for years. How does your strategy compare?
Thanks for being one of the first people to vote. Results will be available soon. Check for results
- I buy great stocks I plan to own forever.
- I hold stocks at least 5 years unless they get into trouble.
- I review what I'm holding and trade about once a year.
- I'm an active trader. Buy and hold is dead.