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Boeing Impresses on Earnings, Operating Cash Flow

The wide-moat firm continues to execute and generate prodigious amounts of cash, but its shares look slightly overvalued.

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Boeing Co


Despite all the focus on earnings, we're still concentrating on cash and operating cash flow came in ahead of our expectations this quarter at $4.6 billion. However, Boeing kept 2018 cash flow guidance unchanged at $15 billion-$15.5 billion. Nothing in the results changed our view that while Boeing continues to execute and generate prodigious amounts of cash, its shares look slightly overvalued. That said, we're moving up our fair value by 2% to $330 due to the 2018 operating cash flow beat we're anticipating. We estimate $15.8 billion versus $15.5 billion for management's upper end of guidance.

Although Boeing expanded commercial airplane margins a whopping 340 basis points, GAAP consolidated operating margins contracted about 200 basis points coming in at 8.9% this quarter. Operating margins in the defense business came in at negative 4.3% compared due to initial investments (non-cash charges this quarter) on the T-X and MQ-25 programs, as well as a small KC-46 tanker charge of $64 million. Even after backing out these charges, defense margins contracted sequentially, and margins also fell about 70 basis points year over year. We're also not convinced that these are the last charges we'll see on T-X or MQ-25 given the fixed priced development contracts Boeing is under on each program and its history of taking charges on the similarly structured KC-46 contract.

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About the Author

Chris Higgins

Senior Equity Analyst
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Chris Higgins, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers aerospace and defense companies, airports, and airlines.

Before joining Morningstar in 2015, Higgins spent eight years working for Airbus Group in both the United States and Europe. While at Airbus Group, he held a variety of positions, ranging from corporate development to investor relations.

Higgins began career in strategy consulting, where he consulted leading U.S. and European aerospace and defense prime contractors. During his time in consulting, he led teams that solved business challenges ranging from merger and acquisition decisions to new product launches.

Higgins holds a bachelor’s degree in economics from Rhodes College, where he graduated as a member of Phi Beta Kappa, and a master’s degree in finance from The Henley Business School in the United Kingdom. He also holds the Chartered Financial Analyst® designation.

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