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Boeing's Steadiest Offense Is Defense

Stocks in this article: BA

This is important, especially as the company strives to sustain long-term defense demand. Management also spoke about growing its bottom line both domestically and globally while being careful not to price itself out of the defense business. This is where management has to balance profit margins while presenting Boeing's value-proposition to its customers.

To that end, for this fiscal year, the company expects defense revenue to be between $30.5 billion and $31.5 billion, roughly 40% of the company's $85 billion in projected revenue, as well as close to double-digits in operating margin. If that isn't an incredible sign of confidence, I don't know what is. Companies don't often go out of their way to put unnecessary pressure on themselves without knowing that they can meet their own expectations.

What's more, Boeing has outlined strategies to reduce risk in its development efforts by leveraging past investments, including ways to increase shareholder value by utilizing derivative airplanes, such as the Navy's new P-8A Poseidon patrol plane, based on the 737.

It's an excellent strategy, especially since management plans to engage customers to identify the technology they value and try to incorporate it into Boeing's long-term plans.

Bottom Line

To the extent that this level of fiscal awareness can help propel Boeing's profitability, investors can expect this stock to fly first class for the next decade. This is precisely one of the reasons that the stock is up close to $100 following Wednesday's investor's conference. More importantly, though, management has been executing in a manner that suggests that the company is adequately preparing itself for any near-term threat.


That said, there should be no panic regarding the stock price; 52-week high or not. Besides, on the basis of Boeing's PEG ratio (price-to-earnings ratio divided by the growth rate), it shouldn't be discounted that Boeing's PEG ratio is 50 basis points lower than Lockheed Martin and more than 70 basis points lower than General Dynamic (GD).

Sports often remind us that "defense wins championships." In the stock market it's also profitable.

At the time of publication, the author held no position in any of the stocks mentioned.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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