What's the right price for Boeing
Examining the question a couple of weeks back, we looked at Orbital Sciences'
But today, yet another M&A aerospace deal is throwing doubt upon this valuation. It's suggesting that far from being undervalued, Boeing may be overpriced -- and the shares could fall as low as $50.
Triumph and tragedy
The news broke yesterday: Triumph Group
If this is the correct price for aerospace companies, therefore, the implication is that Boeing could be worth not the $100 I posited two weeks ago, or the $73 its shares command today, but a measly 50 bucks. (By the same token, fellow aerospace supplier companies like United Tech
Scary prospect, huh? Here's why it's wrong. There are at least two details you need to keep in mind when considering the implications of the Vought acquisition. First, $985 million is just the start of Triumph's obligations in acquiring Vought. The company brings with it a $455 million slug of debt, which, if considered part of the price Triumph is paying, would raise the price-to-sales ratio to about 0.76. Perhaps not coincidentally, if you apply this valuation to Boeing's market cap, minus cash, plus debt, you wind up with a valuation almost precisely where Boeing sits today -- $52.8 billion.
And that's not all. Consider how the market reacted to yesterday's news. No sooner had investors crunched the numbers, than they concluded that Triumph just got the deal of a lifetime. Triumph shares leapt and haven't looked back since -- up nearly 13% as of this writing.
What's the upshot of all these numbers? Worst case, Boeing is fairly priced today. Its valuation based on enterprise value almost precisely mirrors the price Triumph bid for Vought. And in the best (and I'd argue the more likely) case, based on how investors reacted to the price Triumph paid, I'd say Boeing, too, still has room to run.
And yet, Boeing's stock has already more than doubled over the past year. How do you know when the train has left the station and it's too late to buy? Here's how.