industrial the boeing company (nyse: ba) recommendation: … · 2018-04-18 · the boeing company...
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Krause Fund Research
Spring 2018
Industrial Recommendation: BUY
Analysts
Yi Cai
Xincheng Guo
Yuxuan Huang
Xiaodi Xu
Company Overview
The Boeing Company (BA) founded in 1916 is a global
leading manufacture company in Aerospace & Defense
industry. With headquarters in Chicago, Boeing operates in
more than 65 countries and has more than 140,000
employees across the U.S. and worldwide. The company is
divided into four segments of Commercial Airplanes (BCA)
which provides around 60% of total revenue of the firm,
Defense, Space & Security (BDS), Global Services (BGS),
and Boeing Capital (BCC).
Stock Performance Highlights 52-week-High $371.60
52-week-Low $175.47
Beta Value 1.71
Average Daily Volume 6.33 m
Share Highlights Market Capitalization $193.361 b
Shares Outstanding 602.5 m
EPS (TTM) $13.43
P/E Ratio (TTM) 24.52
Dividend Yield 2.03%
Dividend Payout Ratio (period?) 44%
Company Performance Highlights ROA 8.88%
ROE 1989.56%
Sales $93.39b
Financial Ratios Current Ratio 1.16
Debt to Equity 6.18%
The Boeing Company (NYSE: BA)
April 17, 2018
Current Price $331.77
Target Price $370 - $460
Key Investment Highlights
In 2017, Boeing repurchased 46.1 million shares of Boeing
stock for $9.2 billion. Later in 2017 the company issued a new
share repurchase plan of $18 billion for the future 30 months
which signals the Boeing Board of Directors confidence of the
firm’s confidence of financial strength.
Boeing is increasing its production rate for the most popular
planes include 737 and 787 to increase the production rate from
47/month to 57/month in 2019 and 12/month to 14/month in
2019, respectively, to bring the total production rate to 900
annually.
The company wide operating margins increased to 11% in
2017 under GAAP, compare to 6.2% in 2016 and 7.7% in 2015,
indicate the improvement in operating efficiency and
profitability in 2017.
Boeing’s revenue, especially the Commercial Airplanes
sector, is driven by long-term traffic growth, sustained economic
growth and political stability. In early April 2018 the threats of
the potential trade war made Boeing’s stock fluctuate. The
company is vulnerable to uncertainties because of the exposure
to world economy.
Boeing’s backlog stands remains $488 million in 4Q2017
provide a robust revenue potential in the future years.
One Year Stock Performance
(Source: Yahoo Finance, accessed April 17, 2018)
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Real GDP
Real gross domestic product (GDP) is an inflation-adjusted
measure that reflects the value of all goods and services
produced by an economy in each year, expressed in base-
year
prices.
(Source: U.S. Bureau of Economic Analysis)
According to the chart, GDP is gradually growing steady in
recent years compared to early years. Specifically, GDP is
relatively high in Q2-Q3 in every year and relatively low in
Q1-Q4. In recent years, real GDP growth fluctuate between
1% and 3%, it means economy of the U.S. is stabilize.
Based on the trend in 2016 and 2017, we expect the number
will healthy increase to 3% in the short term.
(Source: U.S. Bureau of Economic Analysis)
The chart illustrates the industrial production has a strong
correlation with real GDP. Because industrial production is
dependent on resource consumption, construction,
infrastructure and power generation, it will increase when
real GDP increases. According to the forecast of real GDP,
we expect the industrial production will increase.
Consumer Confidence
Consumer confidence is an indicator of public sentiment
and optimism about the U.S. economy. Industrial production
is driven by consumer spending, an indicator of future
spending.
(Source: U.S. Bureau of Economic Analysis)
According to chart, consumer confidence gradually
increased in recent years and it is expected to achieve the
highest level in 2018. The number of consumer confidence
is benchmarked 1985 as 100. That implies that consumers
have an optimistic view of the economy. The trend will lead
people to spend more on various goods and services.
Because industrial production is related to consumer
spending, we expect it will increase in the future according
to the increase of consumer confidence.
Total Capacity Utilization (TCU)
The capacity utilization rate measures the proportion of
potential economic output that is actually realized.
Displayed as a percentage, capacity utilization levels give
insight into the overall slack that is in the economy or a firm
at a given point in time.
Economic Outlook
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(Source: U.S. Bureau of Economic Analysis)
It is an important business indicator for enterprises and also an
important economic indicator for comprehensive production
capacity. If a company has less than 100% utilization, it
theoretically can increase production without producing the
expensive indirect costs of buying new equipment or new
property. When the capacity utilization is too low, it means
demand declines sharply, unemployment rises, wages fall, and
consumer confidence is reduced.
Based on the chart, total capacity utilization is at a deepest low
in 2009 because of recessions. In recent years, TCU stabilizes
between 75%-80%. It means the industrial sector has a healthy
rate without too much cost and too low risk.
Fuel Prices
The price of oil is usually measured in West Texas Intermediate
crude oil (WTI). In the recent past, crude oil prices fall sharply.
(Source: U.S. Bureau of Economic Analysis)
Based on the chart, after the sharp reduction during 2015, the
price of WTI crude oil is about $56/barrel which is about half
price before the decrease. It is good news for the industrial
sector because manufacturing and consumer wealth is based
heavily on the price of oil. The low price of oil makes the costs
of production low and increases benefit.
In addition, the low price of oil can also influence the consumer.
That means the cost of transportation will reduce and consumers
have more money spend on other parts. According both
industries and consumers, a low oil price is good for industrial
production.
Except for the great change in 2015, the price of oil is basically
stable. Thus, we expect the price will not change a lot in recent
years.
Capital Markets Outlook
According to the research, we analyzed some key factors which
are related to industrial production. Based on the stable GDP
growth, increased consumer confidence, reasonable capacity
utilization and low fuel price, we expect industrial production
will grow in short term. Based on the stable U.S. economy and
stable global economy, we forecast the industrial sector will
steadily increase in the long term.
Description
The name of the Aerospace & Defense industry represents two
major markets. Aerospace includes the production, sale and
service of commercial aircraft. Defense depends on the state's
demand for military weapons and systems designed to fight on
land, sea and air. The industry also includes the production of
general aircraft (mainly for commercial use) and space vehicles,
usually satellites, for military and commercial purposes.
For commercial aspect, world’s airlines are biggest customer. A
few are sold to general aviation use, serving nations, companies
or individuals. Historically, the United States have provided the
largest market for commercial aircraft. However, in recent years,
the demand for foreign airlines increase. For defense industry,
the United states military is the largest market. The companies
not only serve America but also support allies and friends.
In the past, airlines' markets have been cyclical, with orders
surging for years, and demand has fallen sharply, causing
airlines to cancel or delay orders. The reason for this sharp turn
can be traced back to the airline's leverage ratio. For example, if
the break-even operation capacity is 70%, then 71% of the
company will generate profits, which will increase with the
percentage increase. On the other hand, 69% will lead to deficits.
Of course, this is a simplification, but the principle is applicable.
The arms market has its own cycles. During the war, defense
Industry Analysis
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spending rises rapidly, and purchasing and r&d spending, the
lifeblood of the industry), climbing in a fast paced, but when the
war ended, and/or public risk disappeared, then defense
spending to stop climbing (may result in inflation-adjusted
spending down), or an actual current decline in dollars. Demand
for government money tends to rise in a downturn, while tax
revenues are another factor that could lower defense spending
priorities.
Industry trends
(Source: Money show)
(Source: Deloitte)
According to the chart, a sharp increase happened in the
beginning of 2017. The victory of Trump influences the
Aerospace and Defense industry a lot. Trump promise to pay
attention on increasing real GDP and spending on DoD make the
industry grow quickly. After multi-year declines in defense
budgets, the future growth many be driven by the new US
administration’s increased focus on strengthening the US
military. The situation is similar in aerospace, the production of
aircraft gradually increase in recent years.
(Source: Deloitte)
Considering global defense trend, the main part of defense
industry moves from Europe and North America to Asia and
Middle East. In Asia-Pacific place, there have no decrease and
have large portion which increase 6-10%. This is the new market
for defense industry in recent years.
Porter’s Five Forces Analysis
Threat of new entrants: Low
Because the barrier of this industry is the extremely high fixed
costs. New entry requires a large amount investment for
facilities and equipment. Significant market shares are
concentrated at large scale companies like Boeing, United
Technologies, and Lockheed Martin, therefore it is hard for
startup companies to enter the industry competition. Besides,
government contracts and related aviation legislations and
agreements like acquiring license or certification from the U.S.
Federal Aviation Administration (FAA) and the European
Aviation Safety Agency (EASA) requires strict qualifications
and a certain time period. Besides, patents that the large
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companies own also create extra expenses for the new
companies make it even more difficult to enter into the market.
Threat of substitutes: Moderate
Airlines purchase aircrafts considering their specific
requirements for efficiency and profitability, as well as
government and aviation requirements. Switching to another
product is very costly for both the manufacture companies and
airlines due to the high researching, manufacturing, and
marketing costs. However customer loyalty is uncertain,
consumers can easily switch to another aircraft model if their
requirement changes. To cover the shortage on customer loyalty,
Boeing has launched airplane models across 737 to 787, as well
as updates and alternatives within the models, such as from 737-
700 to 737 MAX 10 to fit different preferences of customers.
Bargaining power of customers: Moderate - High
One of the major consideration is quality assurance, consuming
decisions are made for long-term for 10 to 20 years according to
the fleet ages of different airlines. There are only a few buyers of
aircrafts but the purchasing volume is large. Switching to
another product is a long-term but simple. Customers are price
sensitive, and the duopoly of Boeing and Airbus and
competitions from other emerging competitors makes the pricing
setting power of Boeing lower, which in turn moves customers’
bargaining power higher. In addition, governments are one of the
largest customers had have a relatively higher bargain power and
may able to restrict companies’ ability to sell products globally
by, for example, setting tariffs of aircraft trading.
Bargaining power of suppliers: Moderate - High
Aircraft manufacturers seek long-term contracts with material
and engine suppliers, and there are only a few suppliers in the
industry, such as United Technologies, GE aviation, Safran, and
Rolls-Royce Holdings, etc. therefore suppliers have relatively
large power to shape the price. On the labor force side,
companies like Boeing require certain amount of well-trained
employees or those with higher education experience, the
Industry rivalry: High
The market shares are concentrated among a few large-scale
companies like Boeing, Airbus, United, Lockheed, and Raytheon,
as well as their suppliers. There major companies compete for
long-term contracts with airlines. The rivalry is majorly focuses
on, for example, the rival models Boeing 787 “Dreamliner”
powered by GE engines advertise its “fuel efficiency” and
“range flexibility” for carriers’ profit; at the meanwhile, Airbus
A350 powered by Rolls-Royce Trent XWB states that itis the
‘most efficiency’ jetliner that ‘lower the operational cost’ for 25
percent. The advertisement strategies are similar, as well as each
of the company have a specific rival type of airplane to compete
with each other.
The Boeing Company with headquarters in Chicago is the
leading aerospace company in the world as well as the leading
commercial jetliners, military aircrafts, defense, space and
security systems manufacturer. The company has more than 140,
000 employees across the US and worldwide and it is organized
in 4 segments:
Company Overview
Commercial
Airplanes
(BCA)
Produces aircraft and fleet support service worldwide.
Defense,
Space &
Security
(BDS)
Engaged in research and production of military aircrafts weapon and
defenses systems, as well as satellite systems for both world-wide
government and commercial space exploration.
Global
Services
(BGS)
The segment to provide aviation services, trainings, aircraft modifications,
data and information-based services.
Boeing
Capital
(BCC)
A supporting department for the 3 segments above, the main goal is to
provide financing services for funding new aircraft deliveries, ensure
customers purchasing and delivery financial exposures, leases, and
investments.
Company Analysis
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Product Line and Corporate Strategy
The key strategy of Boeing is to create segments by different
capacities and distances, as well as keep updating aircrafts to
adjust different preferences of airlines. Below are the recent
commercial aircrafts and variants:
Pricing is another strategy for Boeing to obtain a large market
ration and loyal customers in the duopoly compete with Airbus.
The prices fluctuate depending on different customers’
purchasing power. The largest airlines get the most favorited
discounts usually around 50% discount of the listed prices.
Financial Summary
In 2017 the firm-wide revenue decreased 1%, however Boeing
reported net earnings boosted 67.5% to $8.2 billion compare to
$4.9 billion in 2016. The reason for this dramatic growth is
partly because of the exchange rate benefits, another reason is
that Boeing experienced strong operations management growth
in 2017 that promoted a better operating margin to 11% compare
to 6.2% in 2016.
As in the year 2017, more than 60% of the total revenue was
provided from the Commercial Airplane segment, following is
the Defense, Space & Security segment which brings 22.55% of
the total revenue.
(Source: Boeing 2017 Annual Report)
Boeing’s market spans globally with customers including
government orderings, major airlines, and corporates in around
150 countries. The geographic distribution of revenue can be
graphed as pie the chart below. The U.S. domestic market takes
the larges part, following by markets in Asia, China, and
Oceania.
(Source: Boeing 2017 Annual Report)
As of the first three months in 2018, Boeing has received total
order of 221 commercial airplanes across 727 to 787 models. At
the meanwhile, backlogs remains rubost at 5864 airplanes total
$488 millions at the end of year 2017, indicates a strong future
revenue potential for the company.
The chart of Boeing company’s cash deployment in from 2013
to 2017 below shows more than one third of the cash was used
for share repurchases. During these years, Boeing repurchased
Model
Number
Length
(feet)
Range
(miles)
Accommodation First
Flight
737 94 3450 220 Apr. 9,
1967
747 231 8800 374 - 490 Feb. 9,
1969
767 159 3840
-
7800
216 - 290 Sept.
26,
1981
777 209 4210
-
8270
305 - 440 June
12,
1994
787 186 8800
-
9440
210 - 250 Dec.
15,
2009
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over 205 million shares and increased dividend per share for
more than 250%. At the end of 2017 the company again issued a
new authorization of a $18 billion share repurchase plan, which
will continue to increase the divided per share in the following
years.
(Source: Boeing Quarterly Repots - Presentation)
Competition
Boeing and Airbus have entered into duopoly and rival since
1990s. In recent years several new rivals from Japan, Russia and
China entered into the competition, but has yet not quite
materialized to rivals to take the market shares from these
dominant duo. Since Airbus has a much smaller segment for
military and defense industry, it’s rivalry to Boeing focuses on
the commercial airplane segment.
Although there is an intense competition among these companies
of prices, airplane types, and profit efficiency, new orders to
Boeing lead the market as of March 31 2018. As reported,
Airbus received total of 45 net new commercial orders. At the
meanwhile, orders to Boeing through March 31 2018 was totaled
221, commercial orders takes roughly half of it (there are 110
unidentified customers listed in the orders).
Research and Development Costs
R&D expense is influenced by company activities. Generally,
when company have some innovate and development, the cost
will increase. Boeing is planning to launch a new 777x in 2020.
Thus, we expect the R&D expense in 2019 will be higher than
2018 and bring the cost to 4,627 million which is similar to 2016
testing expenses.
Weighted Average Cost of Capital (WACC)
We calculated a WACC of 13.38% using a 94.02% equity and
5.98% debt and we forecast the capital structure will continue in
the future. The calculation is based on the cost of equity and cost
of debt. Cost of Equity: The cost of equity was calculated using
the capital asset pricing model (CAPM). The risk-free rate of
2.74% was derived from the 10-year U.S. Treasury yield. The
market rate of return is 9.7% according to the S&P 500. In put a
beta 1.63, then calculate Boeing’s cost of equity to be 14.08%.
Cost of Debt: The Cost of debt was derived from Boeing’s YTM
on their 30-year corporate bond. Thus, a pre-tax cos of debt is
3.65%. In put the tax rate of 21%, the after tax cost of debt is
2.88%.
Valuation Models
The DCF model is built by predicting the free cash flow of
Boeing and discounting by WACC. The annual free cash flow is
calculated by subtracting the net operating profit from the
adjusted tax (NOPLAT) minus the change in investment capital.
The EP profit model was built by investigating the annual
difference between the return on investment capital (ROIC) and
WACC. This difference is multiplied by the first year of capital
investment, and the result is the economic profit generated by
the company in a given year.
Beta vs. Risk Premium
This comparison shows the price of Boeing stock worse off if
beta and market risk premium increase. At the meanwhile, the
stock become less sensitive when the market risk premium goes
down and become less risky. If we hold beta constant at 1.71, as
market risk premium raise 0.25% the price of the stock drops
$6.87; at the meanwhile if market risk premium decrease 0.25%
the price will rise $7.58.
Sensitivity Analysis
Key Valuation Assumptions
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CV Growth of NOPLAT vs. WACC
The analysis shows the Boeing steady state growth rate is above
the overall GDP growth. With the high operating margin, we
believe Boeing is in a good shape, which prove the ever-
increasing aerospace industry. However, the cost of capital is
one important for us to decide the rating of the company. If
WACC holds 10.88% while CV growth raise by 0.5%, the price
only increase by 5 dollars, which is only 1.1% of the target price.
WACC has more significant impact on price than WACC.
Pre Tax Cost of Debt vs. Marginal Tax Rate
Pre-tax cost of debt and marginal tax rate represent the
expectation of investor, according to the data-table, we find cost
of debt increase will lead the prices decrease, that’s means
company pay more attention in the debt. Then, marginal tax rate
increase, this situation will reflect market environment getting
better, so the price was increase. Overall pre-tax cost of Debt
will more important than marginal tax rate, because pre-tax cost
of debt increase 0.1%, stock price will decrease $0.09, when
marginal tax rate held by 7%. But when marginal tax rate
increase 7%, the price just increase $0.02 under same situation.
According to our analysis, we expect Boeing keep low cost of
debt to keep high stock price.
Risk Free Rate vs. CV ROIC
This comparison explain how Risk free rate and Cv growth of
ROIC influence stock price. First, we will find CV growth of
ROIC increase 0.5%, the stock price will increase 2.02 per share,
thus high CV Growth of ROIC means company will have more
assets. Then when we look at risk free rate , we will find high
risk free rate will led stock price low, because according CAMP
formula, we will know high risk free rate will bring low Re, but
the price does not change too much, under CV Growth of ROIC
equal 8.62%, increasing 0.05% risk free rate will decrease $0.63
per share. So keep higher Gve Growth of ROIC will earn more
in stock market.
Commercial Airplane Sales Growth vs. COGS % Sales
When we compare these two factors Commercial Airplane Sale
growth and Cost of Goods Sold percentage of sales, we find a
weird column, that is when Commercial Airplane Sales Growth
at 5.5%, the stock price will reach $1042.37, we review our data
and did not find every mistakes in previous data, so we think
5.5% Commercial Airplane sale growth rate might be a very
suitable rate for Boeing company, under this rate, revenue will
be maximized. When the ratio become 10.5%, we found the
price decrease to $56.79, so higher Commercial Airplane Sales
growth rate did not mean high benefit. The cost of product
percentage of sales just influence a little bit compare to
CAS(Commercial Airplane Sales) ratio, under -7.50% CAS rate,
when the percentage of sale increase 1%, the stock price will
decrease $0.44. So the best way to get benefit is keep CAS ratio
betwee
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Important Disclaimer
This report was created by students enrolled in the Security
Analysis (6F:112) class at the University of Iowa. The report
was originally created to offer an internal investment
recommendation for the University of Iowa Krause Fund and
its advisory board. The report also provides potential
employers and other interested parties an example of the
students’ skills, knowledge and abilities. Members of the
Krause Fund are not registered investment advisors, brokers
or officially licensed financial professionals. The investment
advice contained in this report does not represent an offer or
solicitation to buy or sell any of the securities mentioned.
Unless otherwise noted, facts and figures included in this
report are from publicly available sources. This report is not
a complete compilation of data, and its accuracy is not
guaranteed. From time to time, the University of Iowa, its
faculty, staff, students, or the Krause Fund may hold a
financial interest in the companies mentioned in this report.
References:
1. Consumer Opinion Surveys: Confidence Indicators:
Composite Indicators: OECD Indicator for the United States
https://fred.stlouisfed.org/series/CSCICP03USM665S#0
2. Real Gross Domestic Product
https://fred.stlouisfed.org/series/GDPC1#0
3. Capacity Utilization: Total Industry
https://fred.stlouisfed.org/series/TCU#0
4. Crude Oil Prices: West Texas Intermediate (WTI)
https://fred.stlouisfed.org/series/DCOILWTICO#0
5. 2017 Global Aerospace and Defense Industry Outlook
https://www2.deloitte.com/us/en/pages/manufacturing/article
s/a-and-d-outlook.html
6. Industry Overview: Aerospace and Defense
http://valueline.com/Stocks/Industries/Industry_Overview__
Aerospace_and_Defense.aspx#.WtUPoojwaUk
7. Three ETFs for Aerospace & Defense
https://www.moneyshow.com/articles/tptp072513-
46399/three-etfs-for-aerospace--defense/
8. Defense outlook 2017: A global survey of defense-
industry executives
https://www.mckinsey.com/industries/aerospace-and-
defense/our-insights/defense-outlook-2017-a-global-survey-
of-defense-industry-executives
The Boeing CompanyKey Assumptions of Valuation Model
Ticker Symbol BACurrent Share Price $329.28Beg. Year Share Price $294.91
Current Model Date 4/15/2018FY End (month/day) Dec. 31
Pre-Tax Cost of Debt 3.65%Beta 1.71Risk-Free Rate 2.88%Equity Risk Premium 5.00%Cost of Equity 11.43%CV Growth of NOPLAT 2.91%CV Growth of EPS 2.86%Current Dividend Yield 1.81%Marginal Tax Rate 21%Effective Tax Rate 16.90%WACC 10.90%CV ROIC 46.65%Dividend Payout Ratio 57%R&D % of Sales 3.40%Forward P/E 27.81Growth of Sales 2.00%COProducts % Sales 89.09%
The Boeing CompanyRevenue DecompositionDollars in millionsFiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E 2022CVCommercial Airplanes
737Orders 656 640 836 920 1012 1113 1224 1346
Deliveries 495 490 529 624 684 684 684 684Beginning Year Backlog 4299 4392 4452 4668 4996 5424 5964 6627
Program Revenue 25669 25761 27811 32806 35960 35960 35960 35960
747Orders 6 18 6 4 4 4 4 4
Deliveries 18 9 14 10 9 8 7 6Beginning Year Backlog 36 20 28 12 7 3 0 0
Program Revenue 3495 1772 2756 1969 1772 1575 1378 1181
767Orders 49 26 15 15 15 15 15 15
Deliveries 16 13 10 10 9 8 7 6Beginning Year Backlog 47 80 93 98 104 111 119 128
Program Revenue 1626 1339 1030 1030 927 824 721 618
777Orders 58 23 60 40 42 44 46 48
Deliveries 98 99 74 60 60 60 60 60Beginning Year Backlog 278 218 136 102 84 68 54 42
Program Revenue 16917 17326 12951 10501 10501 10501 10501 10501
777XOrders
Deliveries (1st delivery in 2020) - - - -Beginning Year Backlog - - 306 326
Program Revenue - - - -
787Orders 99 80 107 118 129 142 157 172
Deliveries 135 137 136 144 168 185 203 224Beginning Year Backlog 843 779 700 658 619 577 530 479
Program Revenue 18341 18870 18732 19834 23140 25454 27999 30799
Total Orders 868 787 1024 1096 1202 1318 1446 1586Total Deliveries 762 748 763 848 930 945 961 980
Segment Revenue 59399 58012 56729 57864 59021 60201 61405 62633% Total company revenue 61.80% 61.34% 60.74% 61.04% 61.34% 61.64% 61.95% 62.25%
% Growth -0.99% -2.39% -2.26% 2.00% 2.00% 2.00% 2.00% 2.00%
Defense, Space & SecurityDeliveries 189 184 174 164 164 164 164 164
AH-64 Apache (New) 23 31 11 20 20 20 20 20AH-64Apache (Remanufactured) 38 34 57 40 40 40 40 40
C-17 Globemaster III 5 4 0 2 2 2 2 2CH-47 Chinook (New) 41 25 9 15 15 15 15 15
CH-47 Chinook (Renewed) 16 25 35 25 25 25 25 25F-15 Models 12 15 16 15 15 15 15 15
F/A-18 Models 35 25 23 24 24 24 24 24P-8 Models 14 18 19 19 19 19 19 19
C-40A 1 1 0 0 0 0 0 0Commercial and Civil Satellites 3 5 3 3 3 3 3 3
Military Satellites 1 1 1 1 1 1 1 1
Segment Revenue 23708 22563 21057 21268 21480 21695 21912 22131% Total company revenue 24.67% 23.86% 22.55% 22.44% 22.33% 22.22% 22.11% 22.00%
% Growth 10.20% -4.83% -6.67% 1.00% 1.00% 1.00% 1.00% 1.00%
Global ServicesSegment Revenue 13293 13925 14639 15371 16139 16946 17794 18683
% Growth 41.91% 4.75% 5.13% 5.00% 5.00% 5.00% 5.00% 5.00%
Boeing CapitalSegment Revenue 413 298 307 280 256 233 213 194
% Growth -0.72% -27.85% 3.02% -8.75% -8.75% -8.75% -8.75% -8.75%
Unallocated items, eliminations and otherSegment Revenue -699 -227 660 0 0 0 0 0
% Growth 33.14% -67.53% -390.75% 0% 0% 0% 0% 0%
Total Revenue 96114 94571 93392 94793 96215 97658 99123 100610
Geographic Revenue DecompositionAsia, other than China 13433 10553 8899 9.53%Europe 12248 13790 11457 12.27%China 12556 10312 11911 12.75%Middle East 10846 13297 12287 13.16%Oceania 2601 1843 2061 2.21%Canada 1870 2076 2197 2.35%Africa 1398 1999 755 0.81%Latin America, Caribbean and other 1875 1936 1494 1.60%United States 39287 38765 42331 45.33%Total Revenues 96114 94571 93392 100.00%
The Boeing CompanyBalance Sheet
Fiscal Years Ending Dec. 31 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022CV
Cash & cash equivalents 11733 11,302 8,801 8,813 3,349 2,648 4,041 8,109 12,480Short-term & other investments 1,359 750 1,228 1,179 1,211 1,244 1,277 1,312 1,347Accounts receivable, net 7,729 8,713 8,832 10,516 9,606 10,238 10,911 11,629 12,393Current portion of customer financing, ne 190 212 428 309 305 295 319 345 329Inventories, net of advances & progress b 46,756 47,257 43,199 44,344 46,142 46,668 46,780 47,231 48,335Total current assets 67,767 68,234 62,488 65,161 60,613 61,093 63,328 68,624 74,884Customer financing, net 3,371 3,358 3,773 2,740 3,157 3,194 3,232 3,271 3,310Property, plant & equipment, net 11,007 12,076 12,807 12,672 13,119 13,716 14,339 14,991 15,672Goodwill 5,119 5,126 5,324 5,559 5,559 5,559 5,559 5,559 5,559Acquired intangible assets, net 2,869 2,657 2,540 2,573 2,373 2,173 1,973 1,773 1,573Deferred income taxes 317 265 332 341 409 491 589 707 849Investments 1,154 1,284 1,317 1,260 1,280 1,299 1,318 1,338 1,358Other assets, net 1,317 1,408 1,416 2,027 1,896 1,924 1,953 1,982 2,012Total assets $92,921 $94,408 $89,997 $92,333 88,406 89,449 92,292 98,246 105,217
Accounts payable $10,667 $10,800 $11,190 $12,202 13,004 13,859 14,771 15,742 16,777Accrued liabilities 13,462 14,014 14,691 15,292 16,469 17,678 18,920 20,195 21,504Advances & billings in excess of related c 23,175 24,364 23,869 27,440 24,385 25,252 25,770 26,363 27,031Short-term debt & current portion of long- 929 1,234 384 1,335 736 936 936 936 936Total current liabilities 48,233 50,412 50,134 56,269 54,595 57,726 60,397 63,236 66,248Deferred income taxes 2,207 2,392 1,338 1,839 2,164 2,521 2,905 3,362 3,909Accrued retiree health care 6,802 6,616 5,916 5,545 5,345 5,145 4,945 4,745 4,545Accrued pension plan liability, net 17,182 17,783 19,943 16,471 16,427 16,383 16,339 16,295 16,251Other long-term liabilities 1,566 2,078 2,221 2,015 1,814 1,838 1,841 1,853 1,873Long-term debt 8,141 8,730 9,568 9,782 8,442 7,167 6,019 5,291 4,737Shareholders' equityCommon Stock, $5 par value 9686 9895 9823 11865 11,946 12,026 12,107 12,182 12,182Treasury stock, at cost (23,298) -29,568 -36097 -43454 -50,654 -57,854 -61,454 -62,454 -63,454Retained earnings 36,180 38,756 40,714 45,320 48,760 52,379 54,688 57,055 59,480Accumulated other comprehensive incom (13,903) -12,748 -13623 -13376 -13,279 -13,047 -12,678 -12,376 -12,137Total shareholders' equity 8,665 6,335 817 355 -439 -1,389 -212 3,406 7,595Noncontrolling interests 125 62 60 57 57 58 58 59 59Total equity $8,790 $6,397 $877 $412 -382 -1,331 -154 3,465 7,654Total liabilities and equity 92,921 94,408 89,997 92,333 88,406 89,449 92,292 98,246 105,217
The Boeing CompanyCommon Size Balance Sheet% SalesFiscal Years Ending Dec. 31 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022CV
Cash & cash equivalents 12.93% 11.76% 9.31% 9.44% 10.78% 10.84% 10.43% 10.16% 10.33%Short-term & other investments 1.50% 0.78% 1.30% 1.26% 1.28% 1.29% 1.31% 1.32% 1.34%Accounts receivable, net 8.52% 9.07% 9.34% 11.26% 10.13% 10.64% 11.17% 11.73% 12.32%Current portion of customer financing, net 0.21% 0.22% 0.45% 0.33% 0.32% 0.31% 0.33% 0.35% 0.33%Deferred income taxesInventories, net of advances & progress billings 51.51% 49.17% 45.68% 47.48% 48.68% 48.50% 47.90% 47.65% 48.04%Total current assets 74.66% 70.99% 66.08% 69.77% 71.19% 71.59% 71.13% 71.21% 72.36%Customer financing, net 3.71% 3.49% 3.99% 2.93% 3.33% 3.32% 3.31% 3.30% 3.29%Property, plant & equipment, net 12.13% 12.56% 13.54% 13.57% 13.84% 14.26% 14.68% 15.12% 15.58%Goodwill 5.64% 5.33% 5.63% 5.95% 5.68% 5.68% 5.68% 5.68% 5.68%Acquired intangible assets, net 3.16% 2.76% 2.69% 2.76% 2.76% 2.76% 2.76% 2.76% 2.76%Deferred income taxes 0.35% 0.28% 0.35% 0.37% 0.43% 0.51% 0.60% 0.71% 0.84%Investments 1.27% 1.34% 1.39% 1.35% 1.35% 1.35% 1.35% 1.35% 1.35%Other assets, net 1.45% 1.46% 1.50% 2.17% 2.00% 2.00% 2.00% 2.00% 2.00%Total assets 102.38% 98.23% 95.16% 98.87% 100.58% 101.46% 101.52% 102.13% 103.85%
Accounts payable 11.75% 11.24% 11.83% 13.07% 13.72% 14.40% 15.12% 15.88% 16.68%Accrued liabilities 14.83% 14.58% 15.53% 16.37% 17.37% 18.37% 19.37% 20.37% 21.37%Advances & billings in excess of related costs 25.53% 25.35% 25.24% 29.38% 25.72% 26.25% 26.39% 26.60% 26.87%Deferred income taxes payableShort-term debt & current portion of long-term de 1.02% 1.28% 0.41% 1.43% 1.19% 1.07% 1.08% 1.03% 1.16%Total current liabilities 53.14% 52.45% 53.01% 60.25% 58.01% 60.09% 61.96% 63.88% 66.07%Deferred income taxes 2.43% 2.49% 1.41% 1.97% 2.26% 2.60% 2.99% 3.44% 3.96%Accrued retiree health care 7.49% 6.88% 6.26% 5.94% 5.60% 5.60% 5.60% 5.60% 5.60%Accrued pension plan liability, net 18.93% 18.50% 21.09% 17.64% 17.65% 17.65% 17.65% 17.65% 17.65%Other long-term liabilities 1.73% 2.16% 2.35% 2.16% 1.90% 1.90% 1.90% 1.90% 1.90%Long-term debt 8.97% 9.08% 10.12% 10.47% 9.59% 9.59% 9.59% 9.59% 9.59%Shareholders' equityMarket value of equity 10.67% 10.30% 10.39% 12.70% 14.99% 17.27% 18.42% 17.86% 17.33%Treasury stock, at cost -25.67% -30.76% -38.17% -46.53% -53.44% -60.13% -62.93% -63.01% -63.07%Retained earnings 39.86% 40.32% 43.05% 48.53% 51.44% 54.44% 56.00% 57.56% 59.12%Accumulated other comprehensive income (loss -15.32% -13.26% -14.41% -14.32% -8.32% -8.32% -8.32% -8.32% -8.32%Total shareholders' equity 9.55% 6.59% 0.86% 0.38% 4.67% 3.26% 3.17% 4.10% 5.06%Noncontrolling interests 0.14% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06%Total equity 9.68% 6.66% 0.93% 0.44% 4.73% 3.32% 3.23% 4.16% 5.12%Total liabilities and equity 102.38% 98.23% 95.16% 98.87% 99.74% 100.76% 102.92% 106.22% 109.89%
The Boeing CompanyBalance Sheet% AssetsFiscal Years Ending Dec. 31 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022CV
Cash & cash equivalents 12.63% 11.97% 9.78% 9.54% 3.79% 2.96% 4.38% 8.25% 11.86%Short-term & other investments 1.46% 0.79% 1.36% 1.28% 1.37% 1.39% 1.38% 1.33% 1.28%Accounts receivable, net 8.32% 9.23% 9.81% 11.39% 10.87% 11.45% 11.82% 11.84% 11.78%Current portion of customer financing, net 0.20% 0.22% 0.48% 0.33% 0.35% 0.33% 0.35% 0.35% 0.31%Inventories, net of advances & progress billings 50.32% 50.06% 48.00% 48.03% 52.19% 52.17% 50.69% 48.07% 45.94%Total current assets 72.93% 72.28% 69.43% 70.57% 68.56% 68.30% 68.62% 69.85% 71.17%Customer financing, net 3.63% 3.56% 4.19% 2.97% 3.57% 3.57% 3.50% 3.33% 3.15%Property, plant & equipment, net 11.85% 12.79% 14.23% 13.72% 14.84% 15.33% 15.54% 15.26% 14.89%Goodwill 5.51% 5.43% 5.92% 6.02% 6.29% 6.21% 6.02% 5.66% 5.28%Acquired intangible assets, net 3.09% 2.81% 2.82% 2.79% 2.68% 2.43% 2.14% 1.80% 1.50%Deferred income taxes 0.34% 0.28% 0.37% 0.37% 0.46% 0.55% 0.64% 0.72% 0.81%Investments 1.24% 1.36% 1.46% 1.36% 1.45% 1.45% 1.43% 1.36% 1.29%Other assets, net 1.42% 1.49% 1.57% 2.20% 2.14% 2.15% 2.12% 2.02% 1.91%Total assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Accounts payable 11.48% 11.44% 12.43% 13.22% 14.71% 15.49% 16.00% 16.02% 15.94%Accrued liabilities 14.49% 14.84% 16.32% 16.56% 18.63% 19.76% 20.50% 20.56% 20.44%Advances & billings in excess of related costs 24.94% 25.81% 26.52% 29.72% 27.58% 28.23% 27.92% 26.83% 25.69%Short-term debt & current portion of long-term de 1.00% 1.31% 0.43% 1.45% 0.83% 1.05% 1.01% 0.95% 0.89%Total current liabilities 51.91% 53.40% 55.71% 60.94% 61.75% 64.54% 65.44% 64.36% 62.96%Deferred income taxes 2.38% 2.53% 1.49% 1.99% 2.45% 2.82% 3.15% 3.42% 3.71%Accrued retiree health care 7.32% 7.32% 7.32% 7.32% 7.32% 7.32% 7.32% 7.32% 7.32%Accrued pension plan liability, net 18.49% 18.84% 22.16% 17.84% 18.58% 18.32% 17.70% 16.59% 15.45%Other long-term liabilities 1.69% 2.20% 2.47% 2.18% 2.05% 2.05% 1.99% 1.89% 1.78%Long-term debt 8.76% 9.25% 10.63% 10.59% 9.55% 8.01% 6.52% 5.39% 4.50%Shareholders' equityCommon Stock, $5 par value 10.42% 10.48% 10.91% 12.85% 13.51% 13.44% 13.12% 12.40% 11.58%Treasury stock, at cost -25.07% -31.32% -40.11% -47.06% -57.30% -64.68% -66.59% -63.57% -60.31%Retained earnings 38.94% 41.05% 45.24% 49.08% 55.15% 58.56% 59.26% 58.07% 56.53%Accumulated other comprehensive income (loss -14.96% -13.50% -15.14% -14.49% -15.02% -14.59% -13.74% -12.60% -11.54%Total shareholders' equity 9.33% 6.71% 0.91% 0.38% -0.50% -1.55% -0.23% 3.47% 7.22%Noncontrolling interests 0.13% 0.07% 0.07% 0.06% 0.06% 0.06% 0.06% 0.06% 0.06%Total equity 9.46% 6.78% 0.97% 0.45% -0.43% -1.49% -0.17% 3.53% 7.27%Total liabilities and equity 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
The Boeing CompanyIncome Statementin millionsFiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E 2022CVSales of products 85255 84399 83204 84451 85718 87004 88309 89633Sales of services 10859 10172 10188 10342 10497 10654 10814 10977Total revenues 96114 94571 93392 94793 96215 97658 99123 100610
Cost of products 73446 72713 68365 69812 70859 71922 73001 74096Cost of services 8578 8018 7631 7746 7862 7980 8100 8222Depreciation of PP&E 1357 1418 1548 1583 1616 1650 1685 1720Amortization of Intangibles 224 220 240 236 213 183 174 165Boeing Capital Corporation interest expense 64 59 70 71 72 73 74 75Total costs & expenses 83669 82428 77854 79448 80623 81809 83034 84278Gross profit 12445 12143 15538 15345 15592 15849 16089 16332
Income (loss) from operating investments, net 274 303 204 263 273 270 273 268
General & administrative expense 3525 3616 4094 4094 4094 4094 4094 4094Research & development expense, net 3331 4627 3179 3179 4627 3451 3451 3451Gain (loss) on dispositions, net -1 -7 21 0 0 0 0 0Earnings (loss) from operations 7443 5834 10278 10154 8973 10408 10676 10940
Other income (loss), net -13 40 129 38 38 38 38 38Interest & debt expense 275 306 360 303 308 313 317 322Earnings (loss) before income taxes 7155 5568 10047 9889 8703 10134 10397 10656
Income tax expense (benefit) 1979 673 1850 1671 487 1692 1736 1780
Net earnings from continuing operations 5176 4895 8197 8217 8216 8441 8660 8877
Less: earnings available to participating securites 4 3 6 5 5 5 5 5Net earnings available to common shareholders 5172 4892 8191 8212 8211 8436 8655 8872
Weighted average shares outstanding - basic 686.9 635.5 602.5 581.8 563.3 555.6 554.4 552.5
Net earnings (loss) per share - basic 7.52 7.70 13.60 14.12 14.58 15.18 15.61 16.06
Cash dividends per share 3.82 4.69 5.97 8.05 8.31 8.66 8.90 9.15
The Boeing CompanyCommon Size Income Statement
Fiscal Years Ending Dec. 31 2015 2016 2017 2018E 2019E 2020E 2021E 2022CVSales of products 88.70% 89.24% 89.09% 88.70% 88.70% 88.70% 88.70% 88.70%Sales of services 11.30% 10.76% 10.91% 10.91% 10.91% 10.91% 10.91% 10.91%Total revenues 100% 100% 100% 100% 100% 100% 100% 100%
Cost of products 86.15% 86.15% 82.17% 82.67% 82.67% 82.67% 82.67% 82.67%Cost of services 78.99% 78.82% 74.90% 74.90% 74.90% 74.90% 74.90% 74.90%Depreciation of PP&E 1.41% 1.50% 1.66% 1.67% 1.68% 1.69% 1.70% 1.71%Amortization of Intangibles 0.23% 0.23% 0.26% 0.25% 0.22% 0.19% 0.18% 0.16%Boeing Capital Corporation interest expense 0.07% 0.06% 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%Total costs & expenses 87.05% 87.16% 83.36% 83.81% 83.79% 83.77% 83.77% 83.77%Gross profit 12.95% 12.84% 16.64% 16.19% 16.21% 16.23% 16.23% 16.23%
Income (loss) from operating investments, net 0.29% 0.32% 0.22% 0.28% 0.28% 0.28% 0.28% 0.27%
General & administrative expense 3.67% 3.82% 4.38% 4.32% 4.26% 4.19% 4.13% 4.07%Research & development expense, net 3.47% 4.89% 3.40% 3.35% 4.81% 3.53% 3.48% 3.43%Gain (loss) on dispositions, net 0.00% -0.01% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00%Earnings (loss) from operations 7.74% 6.17% 11.01% 10.71% 9.33% 10.66% 10.77% 10.87%
Other income (loss), netInterest & debt expenseEarnings (loss) before income taxes
Income tax expense (benefit)
Net earnings from continuing operations
Less: earnings available to participating securites 0.00% 0.00% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%Net earnings available to common shareholders 5.38% 5.17% 8.77% -0.01% -0.01% -0.01% -0.01% -0.01%
The Boeing CompanyCash Flow Statement
Fiscal Years Ending Dec. 31 2014 2015 2016 2017Net earnings (loss) 5446 5176 4895 8197Share-based plans expense 195 189 190 202Depreciation & amortization 1906 1833 1910 2069Investment/asset impairment charges, net 229 167 90 113Customer financing valuation provision (benefit) -28 -5 -7 2Loss (gain) on dispositions, net 10 1 7 -21Other charges & credits, net 317 364 369 287Excess tax benefits from share-based payment arrangement -114 -157 - -Accounts receivable -1328 -1069 112 -1821Inventories, net of advances & progress billings -4330 -1110 3755 -1085Accounts payable 1339 -238 622 130Accrued liabilities -1088 2 726 573Advances & billings in excess of related costs 3145 1192 -493 3570Income taxes receivable, payable & deferred 1325 477 -810 857Other long-term liabilities 36 46 -68 94Pension & other postretirement plans 1186 2470 153 -582Customer financing, net 578 167 -696 1017Other assets & liabilities 34 -142 -256 -258Net cash flows from operating activities 8858 9363 10499 13344Property, plant & equipment additions -2236 -2450 -2613 -1739Property, plant & equipment reductions 34 42 38 92Acquisitions, net of cash acquired -163 -31 -297 -324Contributions to investments -8617 -2036 -1719 -3601Proceeds from investments 13416 2590 1209 3639Other investing activities 33 39 2 2Net cash flows from investing activities 2467 -1846 -3380 -2062New borrowings 962 1746 1325 2077Debt repayments -1601 -885 -1359 -953Repayment of distribution rights & other asset financing -185 - -24 -Stock options exercised 343 399 321 311Excess tax benefits from share-based payment arrangement 114 157 - -Employee taxes on certain share-based payment arrangeme -98 -96 -93 -132Common shares repurchased -6001 -6751 -7001 -9236Dividends paid -2115 -2490 -2756 -3417Net cash flows from financing activities -8593 -7920 -9587 -11350Effect of exchange rate changes on cash & cash equivalents -87 -28 -33 80Net increase (decrease) in cash & cash equivalents 2645 -431 -2501 12Cash & cash equivalents at beginning of year 9088 11733 11302 8801Cash & cash equivalents at end of year 11733 11302 8801 8813
The Boeing CompanyCash Flow StatementFiscal Years Ending Dec.31 2018E 2019E 2020E 2021E 2022CV
Cash from Operating Activities Net Earnings 8217 8216 8441 8660 8877
Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 1819 1829 1833 1859 1885 Allowance for doubtful accounts 1145 2490 1884 1030 552
Change in working capital accounts: Chang in receivables 910 -632 -673 -717 -765 Change in inventories -1798 -526 -112 -451 -1105 Change in accrued liabilities 1177 1209 1242 1275 1309 Advance and billings in excess of related costs -3055 867 518 593 668 Other long-term liablities -201 23 3 12 20 Pension and other postretirement plans -244 -244 -244 -244 -244 Customer financing, net -417 -38 -38 -39 -39 Change in account payable 802 855 911 971 1035 Change in deferred taxeds 325 357 384 457 547Net cash provided by operating activities 8682 14407 14149 13406 12742
Cash from Investing ActivitiesChange in investments -20 -19 -19 -20 -20Capital expenditures -447 -596 -623 -652 -681Change in other assets -131 28 29 29 30Capitalization of intangible assets -200 -200 -200 -200 -200Net cash Used for Investing Activities -798 -787 -814 -842 -872
Cash from Financing Activities:Proceeds form issuance of notes payable& long -1,340 -1275 -1148 -728 -554Payment of notes payable& long-term debt -599 200 0 0 0 payment of dividends -4681.08 -4680.21 -4808.73 -4933.60 -5056.81 Proceeds from issuance of common stock 81 81 81 75 0 Repurchases of common stock (7,200) -7200 -3600 -1000 -1000Net cash used by financing activities -13,348 -13176 -9452 -6612 -6469
Net change in Cash -6609 -2046 1999 4922 4848Cash, beginning $8,813 2204 158 2157 7079Cash, ending 2204 158 2157 7079 11927
3349 2648 4041 8109 12479
The Boeing CompanyValue Driver Estimation
Fiscal Years Ending Dec. 31 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022CVEBITA:Net sales 90762 96114 94571 93392 94793 96215 97658 99123 100610-Cost of Products Sold 68551 73446 72713 68365 69812 70859 71922 73001 74096-Costs of Services 8132 8578 8018 7631 7746 7862 7980 8100 8222-SG&A 3767 3525 3616 4094 4094 4094 4094 4094 4094-Research & Development 3047 3331 4627 3179 3179 4627 3451 3451 3451 + Implied Interest on Operating Leases 46 47 45 42 42 43 44 45 46EBITA 7265 7234 5597 10123 9962 8772 10211 10477 10747
LESS: Adjusted Taxes:Provision for Income Taxes 1691 1979 673 1850 1187 1044 1216 1248 1279-Tax on Investment Income 100.45 95.9 106.05 71.4 73.4 75.4 77.4 79.4 81.4-Tax on Other Income -1.1 -4.6 14.0 45.2 8.0 8.0 8.0 8.0 8.0 +Loss on Dispositions Shield -3.5 -0.35 -2.45 7.35 0 0 0 0 0
+ Tax Shield on Boeing Capital Interest Expense 69 64 59 70 63.88 58.29 53.19 48.53 44.29 +Tax Shield on Interest Expense 24.15 22.40 20.65 24.50 63.70 64.66 65.63 66.61 67.61 +Tax Shield on Implied Lease Interest 16.01 16.38 15.76 8.72 8.90 9.07 9.26 9.44 9.63Adjusted Taxes 1628 1926 587 1774 1178 1035 1205 1236 1267
Defered Tax Liabilities -16,028 -15,150 -14,502 -9,888 -10,888 -11,888 -12,888 -13,888 -14,888Plus: Change in Deferred Tax (DT) Liabilities -364 878 648 4614 -1000 -1000 -1000 -1000 -1000
NOPLAT: EBITA- Adjusted Taxes+ Change in DT 5273 6186 5658 12963 7784 6738 8005 8241 8481
Operating Current Assets:Normal Cash (lesser of actual or 2% of sales) $1,815 $1,922 $1,891 $1,868 $1,896 $1,924 $1,953 $1,982 $2,012Accounts Receivable, Net 7,729 8,713 8,832 10,516 9,606 10,238 10,911 11,629 12,393Current portion of customer financing, net 190 212 428 309 305 295 319 345 329Inventory 46,756 47,257 43,199 44,344 46,142 46,668 46,780 47,231 48,335Operating Current Assets $56,490 $58,104 $54,350 $57,037 $57,949 $59,126 $59,963 $61,186 $63,070
Operating Current Liabilities:Accounts Payable $10,667 $10,800 $11,190 $12,202 13004 13859 14771 15742 16777Accrued Expenses 13,343 14,014 14,691 15,292 16469 17678 18920 20195 21504Advances and billings in excess of related costs 23,175 24,364 23,869 27,440 24,385 25,252 25,770 26,363 27,031Operating Current Liabilities 47,185$ 49,178$ 49,750$ 54,934$ 53,859$ 56,790$ 59,461$ 62,300$ 65,312$
Net Operating Working Capital $9,305 $8,926 $4,600 $2,103 $4,091 $2,336 $502 -$1,113 -$2,242Plus: Net PPE 11,007 12,076 12,807 12,672 13119 13716 14339 14991 15672Plus: PV of Operating Leases 1253 1282 1234 1138 1161 1184 1208 1232 1256Plus: Acquired Intangibles 2,869 2,657 2,540 2,573 2373 2173 1973 1,773 1573Plus: Customer financing, net 3,371 3,358 3,773 2,740 2685 2631 2579 2527 2477Less: Other Operating Liabilities $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Invested Capital $26,552 $27,017 $23,720 $20,088 $22,268 $20,856 $19,393 $18,178 $17,479
NOPLAT 5273 6186 5658 12963 7784 6738 8005 8241 8481Beg. Invested Capital $24,781 $26,552 $27,017 $23,720 $20,088 $22,268 $20,856 $19,393 $18,178ROIC 21.28% 23.30% 20.94% 54.65% 38.75% 30.26% 38.38% 42.49% 46.65%
Beg. Invested Capital $24,781 $26,552 $27,017 $23,720 $20,088 $22,268 $20,856 $19,393 $18,178Spread (ROIC
‐
WACC (13.43%)) 10.38% 12.40% 10.05% 43.75% 27.85% 19.36% 27.49% 31.60% 35.76%EP $2,572 $3,292 $2,714 $10,378 $5,595 $4,311 $5,732 $6,127 $6,500
NOPLAT 5273 6186 5658 12963 7784 6738 8005 8241 8481CapEx (∆ IC) $1,771 $465 -$3,297 -$3,633 $2,180 -$1,412 -$1,463 -$1,215 -$698FCF 3502 5721 8955 16596 5604 8150 9468 9456 9179
The Boeing CompanyKey Management Ratios
Fiscal Years Ending 2015 2016 2017 2018E 2019E 2020E 2021E 2022E
Liquidity RatiosCurrent Ratio (CA/CL) Current Asset/Current Liabilities 1.35 1.25 1.16 1.11 1.06 1.05 1.09 1.13Quick Ratio (Cash + ST Investments+ Recievables)/(Current Liabilities) 0.41 0.38 0.36 0.26 0.24 0.27 0.33 0.40Cash Rato Cash/ Current Liabilities 0.22 0.18 0.16 0.06 0.05 0.07 0.13 0.19
Receivables Turnover Total Revenue/ Beginning Receivables 12.44 10.85 10.57 9.01 10.02 9.54 9.08 8.65Day's Receivable 365/ Receivables Turnover 29.35 33.63 34.52 40.49 36.44 38.26 40.18 42.19Inventory Turnover Cost of Products/ Beginning Inventory 1.57 1.54 1.58 1.57 1.54 1.54 1.56 1.57
Financial Leverage RatiosDebt Ratio Total Debt/Total Assets 0.11 0.11 0.12 0.10 0.09 0.08 0.06 0.05Debt to Equity Ratio Total Debt/Total Equity 1.56 11.35 26.98 -24.06 -6.09 -45.30 1.80 0.74
Profitability RatiosGross Margin (Total Revenue-COGS)/(Total Revenue) 14.66% 14.63% 18.63% 18.18% 18.18% 18.18% 18.18% 18.18%ROA (Net Income/Average Total Assets) 5.48% 5.44% 8.88% 9.42% 9.45% 9.34% 8.91% 8.48%Profit Margin (Net income/Total Revenue) 5.39% 5.18% 8.78% 8.67% 8.54% 8.64% 8.74% 8.82%
Payout Policy RatiosDividend Payout Ratio Dividend/EPS 0.51 0.61 0.44 0.57 0.57 0.57 0.57 0.57Retention Ration 1-Dividend Payout Ratio 0.49 0.39 0.56 0.43 0.43 0.43 0.43 0.43Total Payout Ratio (Total Dividend + Repurchases)/NI -0.21 -0.33 0.10 0.12 0.12 0.57 0.88 0.89
Activity or Asset-Management Ratios
Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)
Operating Operating Operating Operating OperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Fiscal Years Ending Leases Fiscal Years Ending Leases2018 216 2017 233 2016 240 2015 221 2014 2232019 201 2018 210 2017 217 2016 203 2015 1712020 157 2019 182 2018 182 2017 175 2016 1422021 115 2020 135 2019 157 2018 146 2017 1202022 96 2021 95 2020 117 2019 123 2018 95Thereafter 570 Thereafter 620 Thereafter 602 Thereafter 618 Thereafter 650Total Minimum Payments 1355 Total Minimum Payments 1475 Total Minimum Payments 1515 Total Minimum Payments 1486 Total Minimum Payments 1401Less: Interest 217 Less: Interest 241 Less: Interest 233 Less: Interest 233 Less: Interest 243PV of Minimum Payments 1138 PV of Minimum Payments 1234 PV of Minimum Payments 1282 PV of Minimum Payments 1253 PV of Minimum Payments 1158
Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases
Pre-Tax Cost of Debt 3.65% Pre-Tax Cost of Debt 3.65% Pre-Tax Cost of Debt 3.65% Pre-Tax Cost of Debt 3.65% Pre-Tax Cost of Debt 3.65%Number Years Implied by Year 6 P 5.9 Number Years Implied by Year 6 P 6.5 Number Years Implied by Year 6 P 5.1 Number Years Implied by Year 6 P 5.0 Number Years Implied by Year 6 P 6.8
Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment1 216 208.4 1 233 224.8 1 240 231.5 1 221 213.2 1 223 215.12 201 187.1 2 210 195.5 2 217 202.0 2 203 189.0 2 171 159.23 157 141.0 3 182 163.4 3 182 163.4 3 175 157.2 3 142 127.54 115 99.6 4 135 117.0 4 157 136.0 4 146 126.5 4 120 104.05 96 80.2 5 95 79.4 5 117 97.8 5 123 102.8 5 95 79.46 & beyond 96 421.5 6 & beyond 95 453.9 6 & beyond 117 451.3 6 & beyond 123 464.3 6 & beyond 95 473.2PV of Minimum Payments 1137.9 PV of Minimum Payments 1233.9 PV of Minimum Payments 1282.1 PV of Minimum Payments 1252.9 PV of Minimum Payments 1158.5
Share Price Beta$447.54 1.51 1.61 1.71 1.81 1.91
4.50% 484.88 473.61 463.64 454.75 446.784.75% 475.33 464.64 455.17 446.74 439.17
Market Risk Premium 5.00% 466.73 456.55 447.54 439.51 432.315.25% 458.92 449.21 440.62 432.96 426.095.50% 451.82 442.53 434.32 426.99 420.42
Share Price CV Growth NOPLAT$447.54 2.00% 2.25% 2.50% 2.75% 3.00%
9.98% 456.24 459.28 461.46 462.51 468.6310.38% 448.82 451.50 453.29 453.29 459.56
WACC 10.88% 440.47 442.78 447.54 444.17 449.52 11.38% 433.01 435.01 436.07 436.07 440.6711.88% 426.31 428.05 428.83 428.83 432.80
Share Price Pre Tax Cost of Debt$447.54 3.45% 3.55% 3.65% 3.75% 3.85%
7.00% 446.80 446.71 446.62 446.53 446.4414.00% 447.25 447.17 447.10 447.02 446.94
Marginal Tax Rate 21.00% 447.67 447.60 447.54 447.47 447.4138.00% 448.54 448.50 448.46 448.42 448.3835.00% 448.40 448.36 448.31 448.27 448.22
Share Price Risk Free Rate$447.54 2.78% 2.83% 2.88% 2.93% 2.98%42.12% 448.52 447.66 446.81 445.97 445.1545.12% 449.02 448.16 447.31 446.47 445.63
CV ROIC 48.12% 449.46 448.60 447.54 446.90 446.0651.12% 449.85 448.98 448.13 447.28 446.4453.12% 450.09 449.22 448.36 447.51 446.67
Share Price Commercial Airplane Sales Growth447.54$ -7.50% -3.50% 1.50% 5.50% 10.50%87.09% 360.82 396.71 450.07 500.50 574.5788.09% 359.96 395.69 448.81 499.00 572.74
Cost of Product % Sales 89.09% 359.11 394.66 447.54 497.50 570.9090.09% 358.25 393.64 446.27 496.01 569.0791.09% 357.39 392.62 445.00 494.51 567.23
The Boeing CompanyWeighted Average Cost of Capital (WACC) Estimationas of 3/31/2018, number in millionsCost of Equity 11.43%Risk-free rate 2.88%Market Rate of Return 9.70%Market Risk Premium 5.00%Beta 1.71
After-tax Cost of Debt 2.88%Pre-tax 3.65%Marginal Tax rate 21%
Market Value of Equity $198,391.20Share Price $329.28Common Shares Outstanding 602.50
Market Value of Debt $12,254.88STD & Current Portion LTD $1,335.00LTD $9,782.00PV Op. Leases $1,137.88
Market Weights% Equity 94.18%% Debt 5.82%
WACC 10.90%
The Boeing CompanyDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs: CV Growth 2.75% CV ROIC 53.12% WACC 10.90% Cost of Equity 11.43%
Fiscal Years Ending Dec. 31 2018E 2019E 2020E 2021E 2022E
DCF ModelNOPLAT 7784 6738 8005 8241 8481CapEx 2180 -1412 -1463 -1215 -698Free Cash Flow 5604 8150 9468 9456 9179Continuing Value 97955
Cash Flow to Discount 5604 8150 9468 9456 97955Discount Periods 1 2 3 4 4PV of Cash Flows 5053 6627 6942 6252 64765
Value of Operating Assets 89639Add: Excess Cash 6945Add: Marketable Securities 1179Add: Other non-operating assets 2027Add: Long Term Investments 1260Less: Debt 11117Less: PV of Operating Leases 1138Less: ESOP 1073Less: Pension Liability 16471Value of Equity 198391Shares Outstanding 603Intrinsic Value per Share $447.54
EP ModelNOPLAT 7784 6738 8005 8241 8481Beginning Invested Capital 20088 22268 20856 19393 18178ROIC 38.75% 30.26% 38.38% 42.49% 46.65%WACC 10.90% 10.90% 10.90% 10.90% 10.90%EP 5595 4311 5732 6127 6500Continuing Value 79777
EP 5595 4311 5732 6127 79777Discount Periods 1 2 3 4 4PV of EP 5045 3505 4203 4051 52746
Value of EP 69551 Add: Beginning Invested Capital 20088Value of Operating Assets 89639Add: Excess Cash 6945Add: Marketable Securities 1179Add: Other non-operating assets 2027Add: Long Term Investments 1260Less: Debt 11117Less: PV of Operating Leases 1138Less: ESOP 1073Less: Pension Liability 16471Value of Equity 198391Shares Outstanding 603Intrinsic Value per Share 447.54$
Model Date 4/15/2018Next FYE 12/31/2018Last FYE 12/31/2017Days in FY 365 Days to FYE 105 Elapsed Fraction 0.288Partial Year Adjusted Price 458.90
The Boeing CompanyDividend Discount Model (DDM)Fiscal Years Ending 2018E 2019E 2020E 2021E 2022E
EPS 14.16$ 14.63$ 15.23$ 15.66$ 16.10$
Key Assumptions CV growth 2.75% CV ROE 128.14% Cost of Equity 11.43%
Future Cash Flows Dividends Per Share 8.07 8.34 8.68 8.92 9.18
Dividend CV Year 105.75$ Discount Periods 1 2 3 4 4
Discounted Cash Flows 7.24 8.34 8.68 8.92 105.75
Intrinsic Value 131.70$
Model Date 4/15/2018Next FYE 12/31/2018Last FYE 12/31/2017Days in FY 365 Days to FYE 105 Elapsed Fraction 0.288Partial Year Adjustment 135.22
The Boeing Company
Relative Valuation Models
EPS EPS
Ticker Company Price 2018E 2019E P/E 18 P/E 19
AIR: FP Airbus $93.80 $3.72 $4.39 25.22 21.37
AM:FP Dassault Aviation SA $1,551 $59.45 $60.98 26.09 25.43
LMT:US Lockheed Martin Corp $337.93 $13.96 $15.59 24.21 21.68
GD:US General Dynamics Corp $220.90 $9.94 $11.21 22.22 19.71
UTX:US United Techinologies Corporation $122.56 $6.66 $7.07 18.40 17.34
HXL:US Hexcel Corp $64.59 $2.68 $3.03 24.10 21.32
TXT:US Textron Inc $58.97 $2.46 $3.09 23.97 19.08 ATR:US AptarGroup Inc $89.83 $3.46 $3.77 25.96 23.83
Average 23.57 21.20
BA The Boeing Company $329.28 $11.84 $11.96 27.81 27.53
Implied Relative Value:
P/E (EPS18) $ 279.01
P/E (EPS19) 253.52$
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol BA
Current Stock Price $329.28
Risk Free Rate 2.88%
Current Dividend Yield 1.81%
Annualized St. Dev. of Stock Returns 34.91%
(in millions) Average Average B-S Value
Range of Number Exercise Remaining Option of Options
Outstanding Options of Shares Price Life (yrs) Price Granted
Range 1 4.42 $71.69 3.93 242.99$ 1,073$
Total 4.42 71.69$ 3.93 265.54$ 1,073$
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares): 4.42
Average Time to Maturity (years): 3.93
Expected Annual Number of Options Exercised: 1.12
Current Average Strike Price: 71.69$
Cost of Equity: 11.43%
Current Stock Price: $329.28
2018E 2019E 2020E 2021E 2022E
Increase in Shares Outstanding: 1.12 1.12 1.12 1.05 0.00
Average Strike Price: 71.69 71.69 71.69 71.69 71.69
Increase in Common Stock Account: 80.58 80.58 80.58 74.94 0.00
Change in Treasury Stock 7,200 7,200 3,600 1,000 1,000
Expected Price of Repurchased Shares: 329.28$ 366.92$ 408.86$ 455.59$ 507.66$
Number of Shares Repurchased: 21.87 19.62 8.81 2.19 1.97
Shares Outstanding (beginning of the year) 602.50 581.76 563.26 555.58 554.43
Plus: Shares Issued Through ESOP 1.12 1.12 1.12 1.05 0.00
Less: Shares Repurchased in Treasury 21.87 19.62 8.81 2.19 1.97
Shares Outstanding (end of the year) 581.76 563.26 555.58 554.43 552.46