Boeing’s current valuation
As of April 28, 2016, Boeing (BA) had a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 8.26x. This is higher than its average valuation of 7.73x since February 2008. And the market is expecting BA’s EBITDA to grow by 10.3% in the next four quarters.
As can be seen from the chart above, Boeing’s has mostly traded above the industry median since 2008. Peers used for the industry median calculation include Lockheed Martin (LMT), United Technologies (UTX), General Dynamics (GD), Rockwell Collins (COL), and Raytheon (RTN).
What should investors track?
In the short term, increasing competition from Airbus resulting in heavy price discounting and lack of orders in commercial planes will make BA’s valuation multiple volatile. Issues such as the recent SEC investigation will also tend to impact valuation multiples.
In the long term, valuation multiples will depend on Boeing’s ability to compete with Airbus and Bombardier. Airlines are Boeing’s major clientele, and so airline industry fundamentals will likely have an impact. Boeing investors should thus keep track of airline industry fundamentals as well. If airlines industry fundamentals deteriorate, it would adversely impact demand for BA’s planes and hurt its valuations.
On the other hand, due to the improving global travel and economic outlook, low raw material prices and low financing costs could provide Boeing with the tailwinds it needs to soar.
Boeing accounts for ~5.7% of the Dow Jones Industrial Average ETF (DIA).