Buffet Radar: Buy Boeing (BA)
Boeing is a large organization with plenty of moving components that, as CEO Dave Calhoun admits, is still undergoing a turnaround. Some of the company's problems weren't Boeing's fault, like the pandemic's impact on the decline in demand for commercial airplanes and the challenges associated with ramping up production when demand for travel increases. Other issues were self-inflicted, like Boeing's errors with its two most crucial new airplanes, the 787 Dreamliner and, more recently the 737 MAX.
Source: Photo by Justin Hu on Unsplash
$BA won several high-profile fixed-price government defense and space contracts due to its choice to bid too cheap, but doing so made it harder for Boeing to turn a profit. This blunder is arguably the worst made by Boeing.
This choice was vindicated in Boeing's most recent third-quarter 2022 earnings report. On the one side, it helped the company expand its revenue again by restarting 787 deliveries in Q3 and increasing 737 deliveries. But on the other hand, the two largest divisions of Boeing, Commercial Airplanes and Boeing Defense, Space & Security, also experienced significant losses (BDS).
What would this entail for Boeing stock and potential investors? First, when $11.6 billion in yearly free cash flow is divided into Boeing's $104.5 billion market capitalization, Boeing stock would have a price-to-FCF ratio of 9. During the pandemic, Boeing took on a ton of debt, and as a result, its balance sheet is now overflowing with $57.2 billion in debt, compared huge just $14.3 billion in cash. Boeing's enterprise value increases to $147.4 billion when the cash and debt are included, giving the stock an enterprise value-to-FCF ratio of 12.7, which seems attractive.
Source: Yahoo Finance