¶ … market capitalization of 23.011 billion, Boeing is the nation's largest producer of commercial aircraft and the world's leading aerospace company. It operates in four principal segments: Commercial Airplanes, Military Aircraft and Missile Systems, Space and Communications, and Boeing Capital Corporation. As the world's market for air travel fluctuates with the risk of war, so do Boeing's revenues. However, as the United States moves towards a footing that may include future wars against perceived 'terrorist states,' Boeing stands to gain from military aircraft and weapons production. As such, it intrigues investors as its market is a careful reflection of the front pages of the world's newspapers.
To successfully evaluate Boeing's stock, we must analyze its fundamentals and the performance of comparables, as well as market performance. A projection of future revenues is necessary, along with an estimation of the cost of capital with which Boeing produces. These allow us to provide a Discount Model-based analysis of Boeing's performance based on revenue projections provided by the company. Such metrics may include a traditional two-staged Dividend Discount Model, along with variants on this model including the Free Cash Flows to Financing and Free Cash Flows to Equity. This may provide us with a more adequate understanding of the company's solvency. Boeing competes with Airbus and several other manufacturers of commercial jets, and its P/E and other ratios can be measured against comparables. These models should be familiar as knowledge of them is required for a Chartered Financial Analyst designation. This report will also contain an analysis of the company's Strenghts, Weaknesses, Opportunities, and Threats as these pertain to its revenue stream and borrowing power.
Strengths:
The company cites "technical excellence" and "innovation" as its key strengths. Its research and development firm, Boeing Phantom Works, is responsible for developing new technologies and disseminating them across the company. Boeing is the only large producer of passenger aircraft in the United States, and also produces aircraft for military use. The United States Department of Defense, with a budget of between 350 and 400 billion dollars a year, represents nearly 50% of the world's defense budget, and is the principal customer of Boeing's Military Aircraft and Missile Systems segment.
Weaknesses:
The market for commercial jets is determined by the volume of passenger air travel. Principal factors that underlie long-term growth in air traffic are sustained economic growth in developed and emerging countries, and political stability. Other notable factors are airline industry profitability, world trade policies, government-to-government relations, environmental constraints, technological changes, and price and other competitive factors. (10-K, 2/03) This market was negatively affected by the recession and September, 11th terrorist attacks and continued to decline through 2002. Boeing's market performance has reflected weaknesses in the airline industry. It should be noted, however, that Boeing enjoys an international market for its aircraft and fluctuations due to political instability are only partially experienced by markets outside the United States
Opportunities
Defense: According to Boeing's latest SEC filing, "Events like nuclear proliferation in North Korea, Operation Enduring Freedom and the continued war on terrorism, highlight the fact that our National Security goals are not rhetorical." It goes on to list military aircraft it produces that may and have been used in armed conflict: "The Company is continuing to invest in business opportunities where it can use its customer knowledge, technical strength and large-scale systems integration capabilities to shape the market. Current major developmental programs include the F/A-22 Raptor, V-22 Osprey tiltrotor aircraft, C-130 Avionics Modernization Program (AMP), the RAH-66 Comanche helicopter and the Unmanned Combat Air Vehicle (UCAV)." The Presidential cabinet is dominated by hawks or 'chicken hawks;' mostly political leaders who have vested interests in international conflict ranging from the reconstruction of countries and structures (Vice President Cheney, former CEO, Halliburton) to oil exploration (National Security Advisor Condoleeza Rice, ExxonMobil Director.) Although according to Boeing, "allocations to DoD procurement are unlikely to increase significantly," there is promise that these leaders will continue to allocate resources for the invasion of small, poorly defended countries.
Counter-terrorism: Boeing is currently working on experimental unmanned aircraft for use in espionage. Given the continued commitment by the governments of the United States and Israel to fighting terrorism, these units should prove effective in the establishment of an unmanned, anti-personnel air force.
Threats
Political instability: The Iraq conflict and SARS epidemic have recently hit the airline industry as well. By appointing...
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