By my count, the number of stories focusing on or at least mentioning Boeing's (NYSE:BA) third-quarter earnings report yesterday morning now exceeds five dozen. At this point, what more is there to add?

  • Revenue grew 12% to $16.5 billion for the quarter.
  • Net profits leapt 61%, and profits per diluted share did even better -- up 62% to $1.44.
  • The company now has an astounding $295 billion worth of future business tucked away in its backlog.

The problem with writing about a "name" company like Boeing is that it's terribly difficult to come up with something original to say -- something the Financial Times-es, APs, and Reuters of the world haven't already said once, updated twice, and credited each other for having already reported three times more. So you want something original? Hey, call me a Fool for even trying, but I'll give it a whirl.

Free cash flow
With everyone else focusing on the GAAP-centric numbers indicated above, let's follow the road less traveled and examine Boeing's cash profits. The aerospace specialist generated $2.9 billion in free cash flow during Q3, nearly 14 times what it managed one year earlier. Such performance isn't repeatable in the long term, however. More instructive is the firm's year-to-date performance, where free cash flow of $6.4 billion represents a 62% increase over the cash generated during the first nine months of 2006. It also happens to be more than twice what Boeing reported as its profits year to date under GAAP ($3 billion).

There's valuation ...
Why is that important? It mainly gives you a different perspective on the valuation of this company, compared to the outlook of much of the financial world. Based on the guidance Boeing provided as part of its earnings release, the firm anticipates earning about $4 billion in net profits through the end of this year. That means the stock sells for about 18 times current-year earnings. In the world of defense contracting, that price looks fair relative to Textron's (NYSE:TXT) or Northrop's (NYSE:NOC) trailing multiples, but a mite expensive relative to the multiple of 16 that Lockheed (NYSE:LMT) shares fetch, or Raytheon's (NYSE:RTN) 13.

... and then there's value
However, Boeing also thinks it will generate free cash flow in excess of $7.3 billion this year, which puts its price-to-free cash flow ratio closer to approximately 10. Now assume Boeing goes on to deliver free cash flow growth at a rate approximating that which analysts posit for earnings growth (15% per year). That would reduce the price-to-free cash flow ratio to less than 9. In my book, that means these apparently expensive shares are looking cheap indeed.

Who else might be cheap in the defense space? Take a look at the valuation I worked up for Lockheed yesterday. And then head to Motley Fool Rule Breakers for a glimpse at the trio of hypergrowth defense firms we've scoped out over there. (Not a subscriber? Not a problem. Get your free 30-day all-access pass right here.)

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.