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Boeing Company (BA) has faced tremendous challenges over the past year. It began with the grounding of its 737 MAX fleet due to critical software issues. The company knew of and covered up the known flaws of the 737 MAX and is now facing backlash.

Now the global Coronavirus pandemic threatens the company further as air travel comes to a halt amid shelter-in-place orders and people are no longer travelling for business. Airlines, faced with a drop in passengers, will not be ordering new planes for years to come and are refusing to take delivery of planes that were already purchased. Boeing’s supply chain is damaged with companies losing workers, which will prevent them from simply restarting in six months. The company halted operations at its Seattle locations in March, and recently halted all 787 operations in South Carolina following the executive stay-at-home order issued in April.

Boeing Company has been talking about and asking for government assistance since the beginning of the pandemic. The company asked for $60 billion in aid, mostly for itself, and has been taking measure to sustain operations. The dividend was suspended, and CEO David Calhoun along with Chairman Larry Kellner agreed to forfeit their pay until the end of the year.

It’s worth noting that Calhoun’s base salary is $1.4 million per year. But on top of that, he is still eligible for an annual target bonus of $2.5 million, long-term incentive awards worth $7.5 million and restricted stock units worth $10 million. Plus, he could receive a bonus of approximately $7 million that hinges on the return-to-service of the 737 Max.

While Boeing is seeking government assistance, Calhoun has stated they will find another way if there are too many stipulations tied to the loan packages. This would include equity, warrants, or options as a condition of government loans. Boeing would prefer to utilize loans that are paid back with interest rather than give up an equity stake.

While current news stories, good or bad, can sway our opinion about investing in a company, it’s good to analyze the fundamentals of the company and to see where it’s been in the past and in which direction it’s heading.

This article will focus on the long-term fundamentals of Boeing, which tend to give us a better picture of the company as a viable investment. I also analyze the value of the company versus the price and help you to determine if BA is currently trading at a bargain price. I provide various situations which help estimate Boeing’s future returns. In closing, I will tell you my personal opinion about whether I’m interested in taking a position in this company and why.

Snapshot of the Company

A fast way for me to get an overall understanding of the condition of the business is to use the BTMA Stock Analyzer’s company rating score. It shows a score of around 69/100. Therefore, Boeing is not considered to be a good company to invest in, since 70 is the lowest good company score. BA has high scores for 10-Year Price Per Share, ROE, Ability to Recover from a Market Crash or Downturn, and ROIC. It has low scores for Earnings Per Share (EPS), Gross Margin Percent, and PEG Ratio. A low PEG Ratio score indicates that the company may not be experiencing high growth consistently over the past 5 years. In summary, these findings show us that BA seems to have average fundamentals, since half of the categories produce good scores.

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Before jumping to conclusions, we’ll have to look closer into individual categories to see what’s going on.

(Source: BTMA Stock Analyzer)

Fundamentals

Let’s examine the price per share history first. In the chart below, we can see that price per share has been mostly consistent at increasing over the last 10 years, with the exception of last year, where share price began to decline. Overall, the share price average has grown by about 298.5% over the past 10 years, or a Compound Annual Growth Rate of 16.6%. This is a significant return.

(Source: BTMA Stock Analyzer – Price Per Share History)

Earnings

Looking closer at the earnings history, we see that earnings have grown consistently over the past 9 years before decreasing significantly. The earnings grew gradually from 2010 to 2016, then EPS greatly increased through 2018 and drastically declined in 2019.

Consistent earnings make it easier to accurately estimate the future growth and value of the company. So, in this regard, BA was a good candidate of a stock to accurately estimate future growth or current value, but the drastic decline in EPS has made future earnings of Boeing more difficult to predict.

(Source: BTMA Stock Analyzer – EPS History)

Since earnings and price per share don’t always give the whole picture, it’s good to look at other factors like the gross margins, return on equity, and return on invested capital.

Return on Equity

The return on equity has widely inconsistent. Records show that return on equity and shareholders’ equity has been negative and, more recently, net income has been negative. These are major warning signs about issues with this company. Typical ROE values for most companies are between 5% and 30%, so we can see that Boeing is not in this norm range and is all over the board.

Let’s compare the ROE of this company to its industry. The average ROE of 18 Air Transport companies is 28.2%. Again, we can see that Boeing has not consistently been within this range of norms for its industry either.

Return on Invested Capital

The return on invested capital has been mostly declining since late 2018. The most recent ROIC was actually negative. These are more warning signs that indicate a risky investment.

Gross Margin Percent

The gross margin percent (GMP) is low and has decreased significantly in the most recent year. I typically look for companies with gross margin percent consistently above 30%. So, BA has not proven that it has the ability to maintain acceptable margins over a long period.

(Source: BTMA Stock Analyzer – Gross Margin Percent History)

Looking at other fundamentals involving the balance sheet, the debt-to-equity is negative, whereas debt is positive. This means that Boeing owes more than it owns. That’s another red flag against this company.

BA’s Current Ratio of 1.05 is good, indicating that it has a good ability to use its assets to pay its short-term debt. Ideally, we’d want to see a Current Ratio of more than 1, so BA exceeds this amount.

(Source: BTMA Stock Analyzer – Current Ratio)

According to the balance sheet, Boeing needs much improvement. In the long term, the company’s health is in trouble as indicated by its debt-to-equity. In the short term, its financial situation is acceptable.

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The Price-to-Earnings Ratio is unreported because the company has negative equity.

BA has paid a dividend of 6.67% over the trailing twelve months.

The Story Behind The Dividend

With regard to dividend history, I’m first interested in knowing if the payout ratio is sustainable. At this time, it’s around 120%, which means that the dividend is unsustainable and that there is no room to grow the dividend. Again, here is another warning sign against this investment.

This analysis wouldn’t be complete without considering the value of the company versus share price.

Value Vs. Price

For valuation purposes, I will be using Morningstar’s EPS TTM of -1.12. I’ve used various past averages of growth rates and P/E ratios to calculate different scenarios of valuation ranges from low to average values. The valuations compare growth rates of EPS, Book Value, and Total Equity.

In the table below, you can see the different scenarios, and in the chart, you will see vertical valuation lines that correspond to the table valuation ranges. The dots on the lines represent the current stock price. If the dot is towards the bottom of the valuation range, this would indicate that the stock is undervalued. If the dot is near the top of the valuation line, it would show an overvalued stock.

(Source: BTMA Wealth Builders Club)

According to this valuation analysis, BA is overpriced in all categories.

  • If BA continues with a growth average similar to its past 5 years earnings growth, then the stock is overpriced at this time.
  • If it continues with a growth average similar to its past 5 years book value growth, then the stock is overpriced at this time.
  • If it continues with a growth average similar to its past 5 years total equity growth, then the stock is overpriced at this time.
  • According to BA’s typical P/E ratio relation to the S&P 500’s P/E ratio, BA is overpriced.
  • If it continues with a growth average as forecasted by analysts, then the stock is overpriced.

This analysis shows an average valuation of around $20 per share versus its current price of about $147. This would indicate that Boeing Company is overpriced.

Forward-Looking Conclusion

According to the facts, Boeing has been more fundamentally sound in the past than it is in the present. The company has the ability to produce high levels of net income, but it also carries a heavy amount of debt. Most recent fundamentals are a mess, and the company shows negative earnings and negative equity. The payout ratio also shows that the dividend is unsustainable. Boeing needs a vast amount of improvement to get back on track.

Lastly, this analysis shows that the stock is overpriced.

Predicted Growth

Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 4%. This year, analysts are forecasting earnings increase of 66.34% over last year. Analysts expect earnings growth next year of 965.58% over this year’s forecasted earnings.” (Source: Forecast Earnings Growth)

If you invest today, with analysts’ forecasts, you might expect about 4% growth per year. Plus, we’ll add the current 6.67% forward dividend. This brings the annual return to around 10.67%.

If considering actual past results of Boeing Company, which includes affected share prices and long-term dividend yields, the story is a bit different. Here are the actual 10- and 5-year return results.

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______________

10-Year Return Results if Invested in BA:

Initial Investment Date: 4/8/2010

End Date: 4/8/2020

Cost per Share: $72.28

End Date Price: $146.87

Total Dividends Received: $40.36

Total Return: 159.03%

Compound Annualized Growth Rate: 10%

_______________

5-Year Return Results if Invested in BA:

Initial Investment Date: 4/8/2015

End Date: 4/8/2020

Cost per Share: $153.36

End Date Price: $146.87

Total Dividends Received: $29.89

Total Return: 15.26%

Compound Annualized Growth Rate: 3%

_________________

From these scenarios, we have produced results from 3% to 10%.

As a comparison, the S&P 500’s annual return between the same periods was 8.46% (10-year annual return) and 5.08% (5-year annual return).

From this data, it appears that Boeing stock performs in a similar way to the S&P 500. But when we look at the chart below comparing the S&P 500 to Boeing from 2007 to 2020, we can see that the S&P 500 has outperformed Boeing most of the time. In addition, the market has been more stable and consistent during this time period. This tells me that it would clearly be a safer and more consistent investment to put my money in a low-fee S&P 500 index fund than to invest in Boeing.

From the research I’ve done, I conclude that Boeing has been a leading company in the world, a top exporter of the USA, and it is a powerful company that is currently facing troubled times because of its failed 737 MAX and, most recently, the economic downturn caused by the coronavirus.

With that said, the company may eventually demonstrate a successful return of its 737 MAX and the coronavirus pandemic will pass. These events could improve Boeing’s reputation, fundamentals, and share price.

But it’s still concerning that this “reputable” company would purposely allow its dangerous 737 MAX airplanes to continue being flown even though it knew of the issues with the plane system for about a year prior to the crash in Indonesia. Further news has been revealed that Boeing employees were not only aware of the plane’s flaws, but they were also making jokes about how dangerous the planes were and that they would not fly on them. The company’s carelessness caused the deaths of 346 people.

This makes me question the integrity of Boeing, and even if the company was a good buy at this time, it could likely cause would-be investors to question whether they would want to invest in a company which might be putting profits before human lives and safety.

This company has too many red flags for me, and it won’t be landing in my portfolio anytime soon.

If you want to find good companies at bargain prices that will provide you with long-term returns and dividends in any investing environment, then my Seeking Alpha Marketplace service (Good Stocks@Bargain Prices) is a good match for you. 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.