Business World

Sunday 17 November 2019

Share watch: High-flying Boeing shares have doubled in just a year

Boeing’s results in last 10 years have been impressive. Stock photo: AFP/Getty Images
Boeing’s results in last 10 years have been impressive. Stock photo: AFP/Getty Images

John Lynch

I hope I'm around to see the time when all the drudgery is removed from normal life and the tedious chores are taken over by robots.

The 'futurologists' tells us that even before that we will see the driverless car and perhaps even more spectacularly, the pilotless aeroplane (a wish of Ryanair at the present moment).

Already the same experts are forecasting that robot-driven planes will save the industry some $35bn a year.

While I cannot see myself ever leaping into an aircraft without the reassuring presence of man or woman in a nice braided uniform and peaked cap, I'll be happy to predict that when the truly pilotless plane makes its eventual appearance, the Boeing Company will play a big part in the initiative.

Boeing is by now one of the best-known companies in the world and one of its craft is said to take off or land every five seconds.

The American giant also has a global footprint over space, defence and security sectors and provides leasing and support services. Everything about it is enormous. It has sales just below $100bn per annum, capital expenditure is a huge $2.5bn a year; has a staggering backlog of orders worth $480bn; and is the top US exporter with a market value of $148bn. It employs 150,000 people around the globe and is quoted on the New York Stock Exchange.

Whenever there has been an important development in the aerospace sector, Boeing has been a feature of the change. In the early 1960s it launched the first commercially successful jet plane and later the iconic 737, which quickly became the 'work-horse' of the travel industry.

Initially, the 737 was slow to inspire the industry but an order from the low-cost Southwest Airlines of Texas (Ryanair's inspiration) changed everything. Interestingly, the plane is still Boeing's future with a massive order book - mainly for the latest model 737 Max, which has a list price of $100m.

The Boeing commercial aircraft operation sells an extensive range of aircraft and related services like training and technical support. Although it faces competitive pressures from Europe's Airbus, the company reckons it is the industry leader for the last five years. Revenue of $65bn, or 70pc of group revenue, is up by one-third in the last five years. In addition it has an impressive and growing backlog of 5,700 aircraft orders, two-thirds for its 737 models. Some investors are concerned with the fall in margins, down by 3pc to 4.8pc.

The group's other operation is Defence, Space and Security systems (DSS). This division produces Apache and Chinook helicopters and F15 fighter jets. Revenue for 2016 at $29bn was down 10pc over the last five years. Earnings from its operations were $3bn - similar to its commercial arm but its margins are more than double. Surprisingly for a major US defence contractor, DSS is increasingly dependent on international business, which now accounts for almost 40pc - up from 25pc five years ago.

Over the last 10 years Boeing's results have been impressive. Annual growth has been 5pc a year, 18pc for operating profits and 28pc for earnings per share, boosted by a $15bn share buyback programme.

However, last year was a mixed one, revenues fell 2pc but were still a whopping $95bn. This reflects a strong performance in commercial aircraft sales. Net earnings of a significant $4.9bn also took a hit of 5pc. In contrast, it had record cash flows, driven by disciplined cash management. This allowed it to repurchase $7bn of shares and pay $2.8bn in dividends.

Today the shares trade at a record high of $256, double its yearly low of $127. The company has a very elevated price earnings multiple of 34 and a modest yield of 2.25.

With US share prices at a record high; is it foolish to consider an investment in any US company? It is a real puzzle. However, Boeing comes with an impressive backlog of orders and in the medium term is in a good space.

It is estimated that in the next 20 years, 38,000 new planes will be required and I'm sure Boeing will be in the mix. It is one share I'd advise for a balanced portfolio.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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