So you say that Boeing (NYSE:BA) is out of the fighter jet business? That Lockheed Martin's (NYSE:LMT) F-35 fighter jet is "the last manned strike fighter" that will ever be built, and Boeing's F-15s and F/A-18 fighter jets are passe?

Well even if that were true (and it may not be), it might not be the end of the world for Boeing. Earlier this year, Boeing Defense head Leanne Caret laid out a plan to refocus Boeing's efforts away from fighter jet production, and toward the sale of auxiliary aircraft such as transports and surveillance and maritime patrol aircraft.

Good news! Things are going pretty well on that front.

Submarine
Boeing's Poseidon rules the seas. Image source: Getty Images.

The Poseidon adventure

Earlier this year, we told you about Boeing's big $3.2 billion sale of nine P-8A Poseidon maritime patrol aircraft to Great Britain. Two years prior, Boeing landed an even bigger deal to sell eight Poseidons to Australia for $3.6 billion (apparently, the prices are coming down as production ramps up), followed by a local contract to provide the U.S. Navy with 16 of these sub-hunting jet aircraft for $2.1 billion.

Clearly, Poseidon sales are heating up; as further evidence, Boeing looks likely to book yet another big Poseidon sale -- this time to Norway. As we learned just last week, the U.S. Defense Security Cooperation Agency has notified Congress of a request by the Norwegian military to buy five P-8A Poseidon aircraft and associated electronics gear for a grand total of $1.75 billion.

Boeing Stock

Market capitalization

$97.2 billion

Revenue

$94.9 billion

Net profit

$4.3 billion

Data source: Yahoo! Finance.

Ready to hunt for Red October

At $350 million per aircraft, Norway will be getting roughly the same deal that the U.K. got in April, and will pay considerably less per plane than the Australians were charged (if not quite as little as the U.S. Navy paid).

Norway intends to use its new Poseidons to replace the six aging Lockheed Martin P-3C Orions it currently has on sub-hunting duty -- and not a moment too soon. For years, we've been hearing about Russian submarines probing NATO defenses in the Arctic region, and south all along the coasts of Scandinavia. These Poseidons should come in mighty handy, keeping track of Russian submarine movements in Norwegian waters.

What it means to Boeing

Boeing will be the prime contractor on the $1.75 billion Poseidon sale -- worth approximately 13% of annual revenues to the company's Military Aircraft division, according to data from S&P Global Market Intelligence. At Military Aircraft's 9.8% pre-tax profit margin, the sales should yield just over $171 million in profit for Boeing -- about $0.28 per share.

Should you buy Boeing stock?

Now, $0.28 may not sound like much. But if you add up all the Poseidons Boeing has been selling around the globe these past few years, this single aircraft type has already yielded well in excess of $10 billion in sales for Boeing, and is rapidly becoming a big part of the planemaker's business.

That being said, one plane model -- even one selling as well as Poseidon -- cannot in and of itself justify buying a stock. To know whether Boeing stock is a "buy," you have to go back to the basics: You need to examine the valuation.

Boeing Stock

Price-to-earnings ratio

24.1

Price-to-free cash flow

11.9

Price-to-sales

1.0

Projected 5-year growth rate

15%

Dividend yield

3.6%

Data sources: Yahoo! Finance, S&P Global Market Intelligence.

Valued on its price-to-earnings (P/E) divided by growth, Boeing boasts a PEG ratio of 1.6. Factor in the 3.6% dividend yield, and the stock's total return ratio drops to 1.3. Both of those valuations seem a bit high. At the same time, though, Boeing's price-to-sales ratio of 1.0 is right on the money for fair value, according to my rule-of-thumb method for valuing defense stocks. Moreover, when valued on its free cash flow -- which eclipses reported "net" income by nearly a factor of two today -- the stock's price-to-free cash flow ratio of 11.9 seems more than acceptable given analysts' expectation of 15% long-term profits growth at Boeing.

All things considered, I think "two out of three isn't bad" here. Boeing's cheap P/FCF ratio, combined with its fair P/S ratio, outweigh my concerns over the stock's somewhat elevated P/E ratio. The stock looks cheap enough to buy.

And while Boeing's robust Poseidon sales aren't the dispositive factor in this analysis, they certainly do not hurt.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 346 out of more than 75,000 rated members.

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