The Boeing Company (NYSE:BA) continues to have problems with its new 787 Dreamliner aircraft, which are currently grounded pending further review of the safety of their lithium-ion batteries. This development comes after the company experienced good financial results in 2012, with revenue rising an impressive 19% and pretax income growing 10% compared to the previous year (earnings were down on a higher effective tax rate). This growth occurred despite a notable decline in net income in the company’s fourth quarter compared to Q4 2011 (though of course the fourth quarter results might be more predictive of business in 2013 than performance earlier in the year). In addition, over 100% of the increase in operating income was derived from cuts to R&D; while the completion (such as it is) of the Dreamliner is a legitimate reason to reduce these expenses, it’s unlikely that Boeing can sustain income growth in this way.
The stock currently trades at 17 times trailing earnings. We aren’t convinced that The Boeing Company can continue to grow its operating income as much as it did last year, and if earnings grow at a somewhat slower rate than the company might be fairly valued or even overvalued at that level. It is possible that effective tax rates were abnormally high in 2012, and so correcting earnings in that way would leave a lower earnings multiple. Analyst expectations imply significant earnings growth over the next couple years, whatever the case, resulting in a forward P/E of 12.
We track 13F filings from hedge funds and other notable investors for a variety of purposes. For example, this information can be useful in developing investment strategies- even with the inherent delay in these filings the most popular small cap stocks among hedge funds see an average excess return of 18 percentage points per year (read more about hedge fund small cap picks). We can also see from our database of filings that billionaire Ken Griffin’s Citadel Investment Group moved heavily into The Boeing Company between October and December, closing 2012 with 2.5 million shares in its portfolio (see Griffin’s stock picks). SAC Capital Advisors, managed by fellow billionaire Steve Cohen, was also buying and reported a position of 1.7 million shares at the end of the fourth quarter. Find Cohen’s favorite stocks.
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