Boeing

Boeing (BA) earlier this week (as I write this) announced their 2017 airplane deliveries and results, and they are outstanding.  Boeing in 2017 delivered and industry-record 762 airplanes and took orders for 912.  Their backlog is 5,864, which is over 7 1/2 years worth of backlog, based on 2017 deliveries.  Today (Friday, January 12) their stock closed at $336/share, which makes their market capitalization over $200 Billion.  My source for all of this is their outstanding website, http://boeing.com.  

I own BA – it is one of my only individual stock holdings.  As you can tell, I am very bullish on BA and its future prospects.  The following are several reasons for my bullishness:

  • Backlog:  Any company with a 7 1/2 year backlog has great future prospects.  Orders, of course, can be canceled, but probably not that many.
  • Barriers to Entry:  When I was in Business School 30 years ago, we used the famous Boeing vs. Airbus Case Study.  Guess which two companies are still the dominant players in the commercial jet market?  There have been no new (consequential) entrants into the commercial jet business since then, and I dare say there won’t be over the next 30 years.  True, there are Embraer, Bombardier, and other smaller commercial jet companies.  China’s Comac is getting started, and they may be the most likely to compete with Boeing and Airbus, but their story shows how high the barriers to entry are in this market:  Comac was started in 2008, and they are still in the test flight stage 10 years later.  Their prospects are good, but if it takes 10 years and all of the financial and technical might of the Chinese Government to get this far, it is unlikely there will be another company to build commercial jets.
  • No Threat of Substitutes:  Many industries are disrupted from below, meaning that cheaper substitute technology or products render existing industries obsolete.  Think of Eastman Kodak and photographic film, and how it was made obsolete by digital cameras.  Can you imagine a scenario whereby people will cease to fly in commercial jets?  What would that be?  Individual planes?  Teleporting?  Hyperloop?  Something else Elon Musk concocts?  FaceTime and Skype are nice but are no substitute for face-to-face interaction – ask any grandparent.  My point is that I don’t envision any technology disrupting the worldwide market for commercial air travel.
  • Boeing’s People:  Boeing has the world’s best aeronautical engineers already working for them.  Where else are they going to go and do what they already do?  Maybe some few will leave for smaller ventures here and there, but the likelihood of Boeing’s employee retention is very high.
  • Product Innovation:  Boeing is innovating with things like carbon planes (777 Dreamliner) and other cockpit technologies, always improving their products.  Boeing has not at all become complacent and looking to milk their product stable for cash.
  • Air Freight:  One of the macroeconomic trends going on right now is the emergence of online retailing and the demise of traditional stores.  Now you buy something online and it is shipped to your front door.  By what means is it shipped?  By truck, true, but also by airplane.  Who makes the airplanes, especially big cargo planes?  Boeing, of course.  The growth of air freight has also led to growth in the used airplane market.  If a commercial airline wants to sell an old plane, they increasingly sell it to an air freight company, which will convert it to carry freight instead of people.  Guess who sells the parts to convert these planes and keep them flying?  Boeing, among others.

The above I believe are long-term factors that support Boeing’s continued prosperity.  The following are some other short-term factors that Boeing currently has going for it that could change with political or economic conditions here in the US and worldwide:

  • Weaker Dollar:  Boeing is truly a worldwide company.  Its website shows each airline and each airline and each company worldwide that buys from Boeing.  The US Dollar has weakened somewhat during the past year, which makes Boeing products less expensive for overseas customers.
  • US Trade Balance:  Boeing is hugely important to the US Trade, as its products account for a very high percentage of US Exports.
  • Defense Buildup:  With the current political administration, there is likely to be a buildup of US military capabilities.  Boeing doesn’t just make commercial airplanes; they also are a huge player in defense contracts.  Boeing also sells its defense/military products to other countries.

IMO

I am bullish on BA because I really don’t see any downside to their business.  Think about this:  Apple is the largest US company with a market capitalization that is approaching $1 Trillion.  Apple’s largest product is the iPhone.  Can you imagine in the future that there will be a product that will replace the iPhone?  I can, for sure.  The iPhone is a great product but it has only been around for a little over 10 years.  Some company somewhere may very well come up with a product or technology that will replace the iPhone.  I don’t see any scenario whereby there will be a product that will disrupt and replace Boeing’s airplanes.  If Apple is worth nearly $1 Trillion, then I believe Boeing is significantly undervalued, even at a $200 Billion market cap.  This is not a knock on Apple – it is just a way of illustrating how I think about Boeing.  Lastly, I really do recommend you look at Boeing’s website – you will be amazed!