"Even the 38 orders that Boeing booked in the first 1.5 months of last year -- 33 after cancellations -- amounted to just 2.3% of the total 1,432 net new orders that Boeing would go on to book over the course of the year. ... Clearly, January and February are not the hottest months in which to try to sell airplanes."
As little as two weeks ago, Boeing was looking to be off to another very slow start to 2015. The year's first six weeks saw Boeing take in a grand total of just six orders for jet planes -- five single-aisle 737s and just one 787 (net of cancellations). But then, a miracle happened.
Boeing's February surprise
Last week, Boeing's order book suddenly boomed, as new plane orders nearly quadrupled to a total of 23 aircraft for the year. Then on Thursday of this week, Boeing doubled that total again, taking in orders for 50 new 737s from an unidentified customer (or customers). Minus cancellations of orders for four other 737s, this now leaves Boeing with a 2015 order book consisting of:
- 63 single-aisle 737s
- five larger 777s
- and one of the company's ballyhooed 787 "Dreamliners."
Add 'em up, and that's 69 plane orders in all. And while it's true that this is still not as many planes as Boeing had sold by this point in time last year, it's still more than six times the order volume we were looking at just two weeks ago. So that's good, but...
What does all this mean for investors?
I won't deny that calling the play-by-plays in Boeing's perpetual horse race with archrival Airbus is fun enough that it's almost makes for an end in itself. But as investors, we must constantly remind ourselves that the objective of a business is not just to make sales: It's to make profits on those sales.
When considering buying Boeing (or Airbus) stock as an investment, that's where we must place our focus: Is Boeing earning enough profit to justify paying the price of its stock?
Well, is it?
Valued on the profits it's reported over the past 12 months, Boeing stock currently sells for 20.6 times earnings. Valued on its much more robust free cash flow ($6.6 billion according to S&P Capital IQ, or 22% more than the earnings claimed on Boeing's income statement), Boeing shares cost only 16.6 times cash profits. And, if you credit Boeing for the net cash on its balance sheet, the stock sells for an enterprise value 15.7 times greater than these cash profits. This last, and most generous, figure is the one I'd ordinarily use in evaluating Boeing for a possible investment.
Relative to even this valuation, though, the stock still looks to be priced at a premium to Boeing's 2.4% annual dividend yield, and its 12.7% projected growth rate. It's not a huge premium, mind you, and it's even perhaps a premium that Boeing deserves, considering that it's the world's largest, and most profitable airplane manufacturer. But it's not a valuation that offers a compelling margin of safety -- not quite the no-brainer, back-up-the-truck "buy" argument that we're looking for.
The upshot for investors
Even with its late-month surge in sales, Boeing continues to lag on plane orders relative to where it was at this point last year. Boeing's also warned investors to expect weaker free cash flow this year than last. Given this, I think it's worth waiting a bit, and giving Boeing's share price some time to pull back and account for these negatives, before buying any more.