Is Boeing a Good Stock to Buy?

Boeing is best compared to aerospace and defense companies, which we’d note have more exposure to U.S. military spending (which may be decreased, or at least see smaller increases, in coming years due to budgetary issues). These include Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), and Raytheon Company (NYSE:RTN). These three stocks, in recognition of the threat to their business, carry trailing earnings multiples of 11 or lower placing them at a discount to Boeing. Analyst expectations are generally flat for all three companies: Lockheed Martin and Raytheon are valued at 10 times expected earnings for 2014 while Northrop Grumman’s forward P/E is 9. So in those terms the gap narrows, to the point where Boeing is slightly more expensive but likely has better prospects. In value terms, therefore, all four seem priced about fairly relative to each other. Income investors should note that Lockheed Martin pays a 5% yield, with Raytheon and Northrop Grumman’s dividend yields over 3% as well.

With aircraft demand sometimes seen as sensitive to macro conditions, we can also consider Caterpillar Inc. (NYSE:CAT) as an alternative to Boeing. An 18% decline in the last year has left the machinery company valued at ten times its trailing earnings, but it was recently forced to write down a Chinese acquisition and experienced a decline in business in the fourth quarter of 2012 versus a year earlier. Analyst expectations are positive over the long term, with a five-year PEG ratio of 0.8, so Caterpillar might be worth checking out if this quarter turns out better.

Boeing trades at a higher trailing P/E than its peers. Even though all of those peers have substantial drawbacks in terms of recent performance or exposure to government spending decisions, we still think that the defense-oriented companies might be value (or income) plays. In Boeing’s case we would want to wait for further information and see how its operating income and tax rates play out.

Disclosure: I own no shares of any stocks mentioned in this article.