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Strong Cash Flows Help Boeing Enhance Shareholders’ Returns

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Strong balance sheet

The Boeing Company’s (BA) financial strength and cash flow–generating capabilities enable it to continue with its shareholder return policy. As of September 30, Boeing had cash and cash equivalents of $8 billion and had generated $12.4 billion in cash flows from operating activities in the first nine months of 2018.

The company’s operating cash flow has improved a lot in the last six years. From $8.1 billion in 2012, its operating cash flow rose 63% to $13.3 billion in 2017. The company anticipates a 16.3% rise in its operating cash flow to $15.5 billion in 2018. Its capex over these years has mostly remained range-bound between $1.7 billion and $2.1 billion, which has also resulted in a sizable rise its free cash flow.

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Free cash flow

A company’s free cash flow is determined by subtracting its capex from its operating cash flow. The cash is used for dividend payments, stock buybacks, and business reinvestment. Boeing’s free cash flow has risen steadily over the last few years.

In 2017, the airplane maker generated free cash flow of $11.6 billion, almost double the $6.1 billion it generated in 2013. Last year, its free cash flow exhibited a steep YoY (year-over-year) rise of more than 47%. Thomson Reuters–surveyed analysts expect Boeing to have a free cash flow of $13.7 billion, a YoY rise of 18%, in 2018.

Analyst optimism

In a note to clients, Cowen aerospace analyst Cai von Rumohr stated last month that several key areas are likely to drive Boeing’s cash flow next year. He pointed out that the aircraft manufacturer is expected to see an upward trend in production in 2019, with its delivery shifting to more profitable models.

The analyst also believes that stable supplier pricing and a lack of upcoming labor negotiations will further boost the company’s profitability as well as its cash flows. He expects the drivers mentioned above to help Boeing’s cash flow per share reach $28.60 in 2019, slightly lower than Wall Street’s consensus estimate of $29.20.

Wall Street expects aerospace and defense (ITA) players Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC) to see cash flows per share of $24.89, $14.63, and $21.69, respectively, in 2019.

Rumohr further expects Boeing’s cash flow per share to rise as high as $35.00 in 2021, which should allow it to raise its dividend per share to $10.00.

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