Investors who stood by Boeing reap reward

Published on NewsOK Modified: April 21, 2013 at 5:18 pm •  Published: April 21, 2013

Boeing still faces some issues. The final price tag for the 787 battery problem isn't known. The battery issue has strained relations with customers already frustrated by the 787's three-year delay in initial deliveries. And weak demand for its superjumbo 747-8 forced Boeing to slow production of that plane.

Still, some analysts think Boeing shares could top $100 — and even top the high of $107.83 set in 2007. They've concluded that Boeing shares are under-valued compared to its ability to generate cash.

Analysts expect the cash produced by Boeing's operations to rise from $7 billion this year to $8.5 billion in 2015, according to FactSet. The biggest generator of that cash will be increasing deliveries for commercial planes.

Investors will share in the bounty. Boeing plans to buy back $1.5 billion to $2 billion of shares in 2013. Sterne Agee analysts Peter Arment and Josh W. Sullivan noted Boeing bought back and retired $9.1 billion in stock, or 15 percent of outstanding shares, from 1998 to 2001, another period of strong deliveries. The two analysts estimate that Boeing could retire 10 percent of its shares over the next two years. The appeal of buybacks is that they boost earnings per share.

Boeing is also boosting its quarterly dividend 10 percent, to 48.5 cents per share. That means investors will get a return of 2.3 percent based on the current stock price — about the same as other big manufacturers such as Caterpillar Inc. and Deere & Co. Dividend-paying stocks are in favor because they deliver reliable quarterly payments at a time when interest-bearing savings accounts pay almost nothing.

Boeing's price-to-earnings ratio, which measures the value of its shares compared to its profits, is currently 16.8, up from 13.8 a year ago. The five-year average is 18.3, suggesting that investors still aren't putting as much value on Boeing's profits as they did in recent years. However, its P/E ratio is higher than Caterpillar's 9.9 and Deere's 10.8. Defense contractor Lockheed Martin Corp. is valued at 11.3 times earnings.

Back in July 2007, Boeing shares were at an all-time high of $107.83, according to FactSet. The stock was subsequently hurt by 787 delays and trouble locking up a huge contract to build a new tanker for the Air Force. Then it plunged along with other big companies during the market sell-off, hitting a low of $29.05 on March 3, 2009.

Richard S. Nackenson, the senior portfolio manager for the Neuberger Berman Multi-Cap Opportunities Fund, said he added to his Boeing holdings after the battery problems occurred. Boeing was already the top holding in Nackenson's fund. He says the 787 risk was reflected in Boeing's stock price in January.

"I want to be very clear: the battery issue has to be resolved, and we want to see the planes flying," Nackenson said. "Evidence is starting to suggest that will take place sooner than the market had originally thought."

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