In the previous article I mentioned how it was kind of odd that Boeing appeared in the top 100 results for companies with a minimum market cap of 50 million. For company’s to appear on that screen it means they rank high as it has to rank higher than company’s with a market cap of 50-1999 million. This high ranking was confirmed when I was running a weekly screen of the top 25 magic formula stocks in which Boeing appeared in the top 25 for stocks with a minimum market cap of 1000.
After making the discovery I downloaded the company’s 2007 10-K to see what is going on. The first thing that came to mind is high oil prices and a slowdown in the U.S economy, but those two factors should have a small impact.
High Price of Oil
As mentioned above the high price of oil might actually be a good thing. CEO’s of airlines are doing everything in their power to lower costs and one thing they are doing is purchasing newer more fuel efficient airplanes. Over the next 20 years, Boeing sees a 2.8 trillion (28,600 airplanes) market for new airplanes
U. S Economy
The main source of Boeing’s record 347 billion backlog comes from abroad. Out of that backlog, only 11% comes from U.S based airlines. Over the next 20 years, the company expects world economic factors to be favorable. First, the company expects a 5% annual increase in passenger traffic. This comes as no surprise as middle classes around the world develop, they have more disposable income to due things such as travel. Also, Boeing expects 6% annual increase in cargo traffic.
While going through the annual report it was a bit disappointing finding out Boeing has repurchased shares at higher levels. They repurchased 29 million shares at prices between 89- $98. Nevertheless, under its current plan it has roughly 4-5 billion shares to repurchase in which I hope it comes at today’s prices.
Overall, the company looks great. Management continues to focus on cutting costs. The only reason I could find why its down is to its inability in getting the planes out. The company lost a big contract for the Air Force Tankers but that decision may or may not be reversed. Even if Boeing loses that tank bid, management expects the company to do fine without them and reaffirmed its outlook for 2009 where EPS is expected to come between $6.80-7/ share giving it a forward P/E of less than 10. Earnings Yield according to the magic formula website is 12%
Disclosure: I will be purchasing shares of Boeing in the coming week
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