Boeing Investors React to Comments by Delta's CEO
EV/EBITDA ratio
To value capital-intensive companies like casinos, we use the forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. A forward multiple indicates what investors are willing to pay for the earnings in the next four quarters.
Companies that are capital-intensive can have different debt levels. They also have high depreciation-amortization levels. Since EV/EBITDA is neutral to capital structure, the comparison across the peers is more sensible than using price multiples.
Current valuation
Boeing’s (BA) forward EV/EBITDA multiple is currently at 8.3x. This is very close to its average valuation since 2005. Boeing enjoyed its highest valuation in 2005 with a EV/EBITDA multiple of 11.6x. Like most other companies, its valuation was at its lowest in 2009. It reached almost 3.7x.
Boeing’s valuation seems to be leading its EBITDA margin, as you can see in the above graph. Analysts are expecting Boeing’s EBITDA margin to remain fairly constant at ~11% for the next two years.
However, a global economic slowdown will adversely affect airlines and Boeing. Airlines are already cutting down on capacity growth to avoid a situation similar to the recession.
Although Boeing’s earnings have been very resilient and it has a huge order backlog, the valuation may fall as investors perceive it to be a riskier time to invest in Boeing.
Boeing is the largest commercial jet manufacturer in the US. It’s the world’s second-largest manufacturer behind Airbus. It’s also the second-largest defense contractor in the US behind Lockheed Martin (LMT). It’s followed by Raytheon (RTN), General Dynamics (GD), and Northrop Grumman (NOC). Boeing forms ~5% of the Industrial Select Sector SPDR ETF (XLI).
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