At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we're going to try and show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
First up: Nomura Securities. Yesterday, the Tokyo banking titan took a close look at Boeing
Let's go to the tape
Based in Japan, the country destined to receive the first installments of Boeing's vaunted 787 Dreamliner later this year, Nomura has better insight, you might think, into the Dreamliner's (and the company's) prospects than other analysts. And it's true -- the analyst does make some good points in critiquing Boeing. For example, valued on its annual sales, Boeing's 0.83 price-to-sales ratio does look a mite pricey relative to, say, the 0.37 P/S available at archrival EADS, or the P/Ses on offer at rival aerospace firms such as Northrop Grumman
Flip the telescope around, however, and Boeing's P/S ratio appears significantly more competitive when weighed against those at a whole host of other aerospace giants. Engine makers United Technologies
In contrast, Nomura's worries about cash flow have more substance to them. According to the analyst, developing and building the 787 has turned into a major cash-drain for Boeing. Indeed, last year the company brought in less than $3 billion in operating cash flow, versus reported net income of more than $3.3 billion.
Time to sell Boeing?
That said … last year Boeing was still developing the 787 -- indeed, it was spending feverishly to fix an electrical system malfunction that threatened to set fire to one of Boeing's test planes. This year, in contrast, is supposed to be the year in which Boeing rights the ship, begins delivering 787s … and collecting cash payments for them. If that's the way things play out in 2011, 2012, and beyond, Nomura's cashflow worries may prove to have been overblown.
So time (as the saying goes) "will tell" whether Nomura's right about the cashflow issue. Personally, though, I find such "we shall see" navel-gazing to be singularly unhelpful advice. When seeking investment advice, I want to know what's happening now, and what it portends for what should happen in the future -- facts, not conjecture. And it's here that Boeing really shines. You see, when I hear Nomura lament the lack of "competitiveness of Boeing's current product offering," that complaint just doesn't match up with what I'm seeing on the ground (or in the air):
- The 787, as we're so often told, is the fastest-selling new airplane in history.
- Its 777, in the words of one Fool reader, is the "best-selling wide body airliner of all time."
- 737 sales are going absolutely gangbusters.
- And to top it all off, Boeing won the competition to build the KC-X Tanker.
This is what Nomura calls "uncompetitive"? If so, it's only because Boeing has the competition so far outclassed that it's no contest at all.
Back in December 2010, I made the controversial prediction that Boeing just might turn out to be the best performing stock of 2011. Since then, the stock has made good progress in proving me right, rising 11% in four months, against a gain of just 4% for the S&P 500. Notwithstanding Nomura's protests to the contrary, I expect Boeing to keep on "winning," all year long.