Should You Buy the Dow — Boeing

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tdp2664 InvestorPlace Today, we’ll look at Boeing (NYSE: BA ), the venerable aviation company now in its 95th year of business. But Boeing does a lot more than just build planes. The BMA segment engages in the research, development, production and modification of manned and unmanned military weapons systems. The N&SS segment involves the research, development, production and modification of products and services to assist its customers in transforming their operations through network integration, information, intelligence and surveillance systems, communications, architectures and space exploration. The GS&S segment offers logistics support functions for military platforms and operations. The BCC segment facilitates, arranges, structures and provides financing solutions for its commercial airplanes customers. The key driving factors regarding Boeing are the defense budget and the overall health of the airline industry. Given that the United States currently is involved in three conflicts, and that the defense budget has not yet been touched despite arguments over the national debt, the military component of Boeing's business seems likely to remain robust. Commercial airlines also are doing just fine, and coming off the recession, the demand for travel is increasing. That doesn't necessarily mean earnings will soar, however. This is an expensive business to run, particularly regarding labor, and there always is the concern that projects such as the Dreamliner will fall behind, harming margins. There also are legitimate worries that the budget super-committee will come back with big defense cuts, and those could filter down to Boeing. Analysts looking out five years on Boeing see annualized earnings growth at 13.2%, but that includes a 5% earnings decrease in 2011 reflecting those aforementioned issues, with a 25% increase expected in FY 2012. At a stock price of $63, on FY 2011 earnings of $4.24, the stock presently trades at a P/E of 15. Lockheed Martin (NYSE: LMT ) and Northrop Grumman (NYSE: NOC ) are the closest competitors, with P/Es of 9 and 8, respectively. A look at Boeing’s financials: The company carries $8.8 billion in cash, as well as $10.3 billion in debt at an interest rate of only 2%. Trailing 12-month cash flow was $4.2 billion, so the debt service is no problem. The company also had 3.5 times the amount of free cash flow necessary to pay its 2.7% dividend. So Boeing appears to be on solid footing financially. There have been three insider purchases of about 5,000 shares in the past year — not a huge endorsement, but better than nothing. Conclusion Placing a 13 P/E on Boeing, with projected 2015 earnings of $7.56 per share, gives us a price target of $98. Add in reinvested dividends, and that suggests about a 70% total return. It is arguably overvalued on this year's earnings, but fairly priced for next year. There's not a lot of margin for error here, though, and the dividend isn't compelling enough for retirement accounts. I'd say if you don't have Boeing already in your portfolios, there are better choices elsewhere. If you do, though: I believe Boeing is a hold for regular accounts. I believe Boeing is a hold for retirement accounts. Lawrence Meyers does not own shares of Boeing.