Ashutosh Kr.Sinha (DSI# d03252878)
730 Santana Drive
Corona Del Mar, CA 92625
(949) 719 2955
FI560 Securities Analysis
June 08, 2011
The purpose of this paper is to make buy or sell recommendation for the Boeing Company’s stock based on the technical analysis and fundamental analysis. The technical analysis consists of analysis of return on equity; the company’s projected future growth of earnings; an analysis of its required rate of return using the CAPM measurement; and the company’s intrinsic value using the discount valuation technique. The fundamental analysis consists of describing the competitive forces in the industry including the company’s relative advantages and disadvantages to its competitors and a discussion on ROE as the basis for growth. Based on the technical analysis, we find that Boeing’s stock is overpriced. Its intrinsic value is $13.39 in 2011, which is substantially less than its current price. But, our fundamental analysis shows that Boeing Company has not only greater earnings growth but also little more ability to grow than its competitor Lockheed Marin Corporation. The Boeing Company also has strong prospect for earnings growth in coming years. Based on the technical and fundamental analysis, we recommend hold. Background
Boeing is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. Additionally, Boeing designs and manufactures rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. As a major service provider to NASA, Boeing operates the Space Shuttle and International Space Station. The company also provides numerous military and commercial airline support services. Boeing has customers in more than 90 countries around the world and is one of the largest U.S. exporters in terms of sales. Headquartered in Chicago, Boeing employs more than 158,000 people across the United States and in 70 countries (Boeing, 2011, p.1). Early History of Boeing Commercial Aircraft
Boeing started its career in the second half of 1920’s by selling training aircraft to the U.S. Navy. Boeing founded Boeing Air Transport (BAT) an airline operator for passenger flights (1927) and at the same time it engaged into a contract with the U.S. Postal Service to transport mail between Chicago and San Francisco. The U.S. government was involved in the nascent industry through its defense arm by ordering combat planes and with the passage of the Air Commerce Act which established federal regulation over commercial air services and federal funding for establishing the beacon network necessary to guide those flights (Sgouridis, 2007, pp.89-90).
As a builder of planes, Boeing was one among dozens small aircraft companies competing for a relatively small and unpredictable market. Boeing managed to distinguish itself through conglomeration: in 1928, during a booming stock market period, Boeing airplane and Transport Company absorbed Boeing Airplane Company, BAT, engine maker Pratt & Whitney, a propeller manufacturer and smaller regional airlines becoming “the largest aerospace conglomerate in the world” (Lynn 1997). This conglomerate, known as United, was the essence of vertical integration, controlling almost all aspects of the aerospace business. By 1931 United Airlines had a fleet of 120 planes that flew 32,000 miles a day (Sgouridis, 2007, p.90). A continuing expansionist drive for market domination fueled the conglomerate. United created demand for aircraft and the manufactures profits are used of designing bigger and better planes that would in turn attract more passengers generating more profit for both division (Sgouridis, 2007, p.90).
The early of aircraft manufacturing history demonstrate some themes that are consistent over time: diversification...