It's Way Too Late to Board Boeing

 | Jul 30, 2017 | 2:00 PM EDT
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This commentary originally appeared on Real Money Pro on July 28. Click here to learn about this dynamic market information service for active traders.

Nothing gets investors' juices flowing like seeing a stock hit a new all-time high, as happened Thursday for Boeing (BA) after the airplane giant reported better-than-expected quarterly earnings. BA hit a $242.68 record peak intraday before pulling back slightly, and analysts raced to upgrade their opinions to avoid looking silly.

Now, Boeing is a fine company, but at current prices, the stock is sporting its highest valuation in more than a decade. Excluding 2009 (when earnings per share plunged during the Great Recession), BA has averaged around a 16.2x multiple and about a 2.5% dividend yield since 2007.

But at Thursday's $241 closing price, BA commanded about a 24.3 price-to-earnings ratio relative to the midpoint of management's latest 2017 earnings guidance of $9.80 to $10 per share. Even the stock's three most recent "should-have-sold" moments (denoted with red stars below) never reached that rarified level:

In fact, momentum chasers who bought Boeing near the stock's 2007 peak just under $108 watched in horror shares plunged 66% to less than $37. It took such buyers more than five years to finally start making money.

Similarly, traders who purchased BA at the stock's late 2013 peak needed almost two years to sustainably break into the black. And those who bought Boeing at its early 2015 top near $159 saw the stock drop to around $102 over the next 18 months.

By contrast, value seekers have gotten multiple opportunities in recent years to pick up Boeing at much more favorable absolute and relative valuations. I highlighted five separate times with green stars in the chart above where you could have gotten the stock well below typical price-to-earnings ratios, along with more-generous-than-normal dividend yields. For example, Boeing's early 2016 bottom allowed savvy investors to snap up shares at a single-digit forward P/E and a 4.27% yield.

What is Boeing's intrinsic value?

Well, it's certainly a unique, high-quality company, but applying a more-normalized multiple to the firm's $11-a-share 2018 earnings estimate only justifies about a $180 share price 18 months out. And reverse-engineering Boeing's current $1.42 quarterly dividend to a 2.5% yield still sets BA's value back to $227.20.

And while Standard & Poor's gave Boeing a "Four-Star Buy" rating (out of a possible five stars) ahead of this week's run-up, S&P's computer-generated fair-value assessment still only saw a $204.70 share price as justified:

Even worse, Morningstar -- which tends to weight fundamentals rather than chart action -- rated BA as a "Sell," giving the stock only two stars out of a possible five and a $189 fair value:

In fact, the chart above (which shows BA's price-to-fair-value relationship) has only looked this extreme on a few previous occasions. While the stock eventually gained ground in those instances, investors needed extreme patience to benefit. And in every case, there were much more favorable entry points waiting in the wings.

The Bottom Line
If you're lucky enough to have already boarded Boeing, consider locking in your gains here. And traders with "performance envy" should fight the urge to board the stock while Boeing is flying far too high to offer much upside.

After all, why pay a higher ticket price than all of the previous "passengers" who came before you?

(Paul Price provides fundamental analysis of a different stock every market day on Real Money Pro, our premium site for Wall Street professionals. Real Money subscribers can check out Real Money Pro here.)

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