The CEO of Boeing, which manufactures commercial jetliners as well as sells and services military aircraft and satellites, among other things, told investors at this week's annual meeting that the company is determined to cut the cost of producing those products.
Rather than take on expensive, gargantuan projects like the 787 Dreamliner, which CEO Jim McNerney characterized as "moon shots," he said he wants Boeing "to be more like Apple" with its carefully planned development strategies on successful product launches.
This willingness to learn from other industry leaders helps explain why Boeing's trailing 12-month (TTM) return on equity (ROE) is 41.6%! ROE helps both investors and analysts to better understand the profitability of a company by measuring how much profit a company generates with shareholders invested money. ROE is also defined as the amount of net income returned as a percentage of shareholders equity.
Boeing's stock performance has impressed analysts and pleased shareholders. As of the Thursday close of $132, shares are down 3.4% for the year to date. But as the following five-year chart illustrates, the stock has been a high-flyer since the 2009 lows.<
If you'd purchased shares of Boeing at the low in January 2009 of around $29.05, you'd be sitting on about a 454% profit today. Not including dividends, that's an average annual gain of nearly 91%. Not many analysts imagined how high BA would soar from its 2009 nadir.
The stock's dividend yield currently is about 2.21%, representing a sustainable payout ratio of 38%. At the end of the first quarter 2014 Boeing had total cash of nearly $12.2 billion, TTM operating cash flow of $8.77 billion and nearly $5.5 billion of free cash flow, according to Thomson Reuters.
The company recently finalized an order for eight more next-generation 737-800s and seven 737 MAX 8s. According to a Boeing press release the 737 MAX now has 2,017 orders from 40 customers.
At the investors meeting management reiterated its2014 financial guidance and renewed confidence that Boeing can continue to grow its margins and that production issues surrounding the 787s are resolved.
As the worldwide economy strengthens I anticipate more people will travel and airlines will have more money to invest in new planes, leading to increased orders for Boeing. Factor in the cost cutting and production efficiencies that management learns from Apple and EPS should outperform, too.
Most analysts give Boeing a one-year price target of $156 on average. Based on the CEO's determination to improve the production process and strengthen its ROE I see shares soaring to $170 over the next 12 months. Look for buying opportunities this summer below $133.
At the time of publication the author had positions in both BA and AAPL
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.