One of the members of The Boeing Company (NYSE:BA)’s Board of Directors directly acquired 1,500 shares on May 1st at an average price of $91.59 per share, according to a filing with the SEC. Kellner now owns 2,500 shares directly, so this purchase more than doubled his direct holdings. We track insider purchases because economic theory states that it is rational for insiders to diversify their wealth rather than increase company-specific risk unless they are particularly optimistic. In fact, studies do show a small outperformance effect by stocks bought by insiders (learn more about studies on insider trading). We would note that several insiders at The Boeing Company (NYSE:BA) have been selling shares recently (see a history of insider sales at Boeing); insider sales are generally not as informative as insider purchases for diversification reasons, but a consensus of insider selling is at least somewhat concerning.
The Boeing Company (NYSE:BA) began this year with some safety issues related to its new Dreamliner aircraft, but the stock has actually managed to gain 20% year to date (which could potentially explain the volume of insider selling). While earnings numbers for the first quarter of 2013 did show a significant increase versus a year earlier, this looks to have been entirely due to a lower effective tax rate; revenue and pretax income were both down slightly over the same time frame. Earnings per share numbers did beat expectations.
At its current market capitalization of $71 billion, The Boeing Company (NYSE:BA) trades at 18 times its trailing earnings. Wall Street analysts are expecting a big boost in earnings per share this year, however- at least in part due to Dreamliner related business, we’d imagine. Consensus forecasts for 2013 are for $6.48 in EPS, which would imply a current-year earnings multiple of 14. Hitting that target would bring the company closer to value territory.
Several hedge funds had significant positions in The Boeing Company (NYSE:BA) as of the beginning of this year; we follow quarterly 13F filings from hedge funds and other notable investors as part of our work developing investing strategies (for example, the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). Billionaire Ken Griffin’s Citadel Investment Group increased the size of its position in The Boeing Company (NYSE:BA) during the fourth quarter of 2012 to a total of 2.5 million shares (see Griffin’s stock picks). SAC Capital Advisors, managed by billionaire Steve Cohen, was also buying and disclosed ownership of 1.7 million shares at the end of December (find Cohen’s favorite stocks).
Boeing’s peers include Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN), Northrop Grumman Corporation (NYSE:NOC), and United Technologies Corporation (NYSE:UTX). In general, aerospace and defense companies are trading at low multiples as investors worry about the effects of cuts in U.S. military spending on their businesses. As a result Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN), and Northrop Grumman Corporation (NYSE:NOC) all carry trailing P/Es in the 10-12 range. All three saw small decreases in revenue last quarter compared to the first quarter of 2012; Lockheed Martin and Raytheon managed to translate that into decent increases in earnings, but we’d imagine that these companies will not be able to sustain increased net income purely based on net margins. We would also note high dividend yields at these peers, with Lockheed Martin paying 4.6% at current prices. United Technologies Corporation (NYSE:UTX) – fueled by the effects of an acquisition- saw significantly more business. Sell-side forecasts have the forward P/E at 13, about even with Boeing.
The more defense-oriented companies seem somewhat interesting from a value (and, in some cases, income) perspective, though of course these stocks should be trading at low multiples given the political environment and we would have to stress test any impacts of lower federal spending. Boeing is a bit dependent on strong improvement in EPS this year for our liking, and between that, the not particularly strong Q1, and the large number of insider sales- none of which would be too concerning on their own- we would avoid the stock.
Disclosure: I own no shares of any stocks mentioned in this article.
