Thursday, February 01, 2018

Boeing Flying High, But How Good Can It Get? On the metrics investors most care about, it has been a dream flight for the airplane maker

The Wall Street Journal
By Alex Frangos
January 31, 2018 10:38 a.m. ET

What do you call a cash machine with wings? Boeing

The airplane maker has been on a tremendous streak, notwithstanding a humiliating though financially unimportant loss in a trade tariff case regarding imports of Bombardier jets. On the metrics investors most care about, it has been a dream flight.

Full-year results out Wednesday show why. Operating cash flow exceeded $13 billion, handily beating expectations. And guidance for the future looks robust, with the company expecting to generate $15 billion of operating cash in 2018, well ahead of the $13.6 billion analysts had been forecasting, according to FactSet.

Boeing was one of the biggest winners of the reduction in corporate tax rates, boosting last year’s earnings per share by a fifth. The core commercial airplane business continues to excel as it cranks out more 737 Max models and higher margin 787 Dreamliners roll off the production line.

The broader industry environment also remains solid. Boeing’s customers, the airlines, are enjoying bumper air passenger growth globally in the high single digits, well above their 4% to 5% historical average.

The roaring stock price, however, should give investors pause. Following last year’s 90% gain, Boeing shares kept up the pace in January, rising by another 21% by Wednesday morning, leading other members of the Dow Jones Industrial Average by a wide margin.

The pessimistic case isn’t that Boeing is doing anything wrong—it is that investors are simply too excited and not factoring in possible bumps in the road. Boeing’s multiple of enterprise value to earnings before interest, tax depreciation and amortization is at its highest level in absolute terms and relative to the S&P 500 this millennium. Its multiple of price to free cash flow, has expanded rapidly since early 2016.

Boeing is flying high, but at some point the altitude gets to your head.

Original article can be found here ➤

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