August 2004 
Volume 03, Issue 4 
Focus on Finance

Value proposition

A look at factors that determine Boeing’s stock price


Following last month’s first-ever ShareValue Trust payout, Boeing employees may find themselves paying closer attention to the company’s share price.

Boeing Frontiers asked Investor Relations representatives Bob Kurtz and Denise MacNeil to explain what factors drive Boeing stock, clear up common misconceptions and remind employees what they can do to keep the Boeing stock price on an upward trend.

Q: Why should employees care about stock price?

A: Because it affects their pocketbooks as well as the company’s. Boeing employees own more than 10 percent of Boeing stock, or about 100 million shares, primarily in their 401(k) retirement savings accounts. Stock appreciation can dramatically affect the value of your retirement package. Plus, profit-sharing programs such as ShareValue Trust are tied to stock price, so employees receive a percentage of the value created by steady stock price growth.

From the company’s perspective, the bottom line for business is generating value for its owners. Boeing does that by building amazing products that bring people closer and protect the peace.

If a company’s stock price is not doing well, it has a hard time raising money in the debt and equity markets to finance business growth.

Q: What are some key factors that influence share price?

A: Owners of Boeing stock are looking for a good return on their investment. That’s largely a function of consistent, positive financial performance as evidenced by key fundamentals such as earnings per share and cash flow. What are they now and what are they expected to be over the next five years? Certain investors look for technical indicators such as a stock’s recent history and buy on “momentum” or steady growth. That pushes a stock higher, although the reverse can happen on the way down. A third factor is what’s happening in the broader market or industry sector.

Q: What else do investors consider?

A: Investors look at three basic things. One is the strategy—is it sound, does it differentiate you from the competition and is it sustainable over the long term? Another is your view of the future—what is your financial guidance, market outlook, and operating plan? Finally, they look at predicted results and how well management does achieving those results. Here, Boeing has had a spottier record in the past few years than some of our competitors. It all comes down to meeting commitments and flawless execution.

Q: How does Boeing differ from other companies in its sector and what impact does that have on valuation?

A: We’re clearly a more diversified company than our defense peers. Boeing stock has been hurt by the post-9/11 commercial airline industry downturn in a way others such as Lockheed Martin and Raytheon have not. That said, we’re well positioned for when the airplane market returns. The strength of that recovery will help to drive Boeing’s stock price growth.

Q: But more than half of Boeing’s revenues currently come from defense.

A: The value of Boeing stock today is underpinned by strong Integrated Defense Systems growth and margins and excellent program execution. According to some analysts, as much as $36 of our current $47.06 (as of July 23) share price is attributable to IDS. By adding a recovering commercial airplanes business to our solid, growing IDS unit, we have tremendous upside potential in our stock price if we execute flawlessly.

Q: What kinds of things can Boeing do to ensure it’s properly valued?

A: It starts with execution and delivering on our commitments. Second is continuing to make good strategic investment decisions. Analysts are looking for Boeing to invest in its future, whether that’s in research and development or Lean or 7E7 or new Phantom Works initiatives. We also have a robust investor outreach program to ensure investors and the public understand our strategy and have confidence in future performance.

Q: Employees sometimes ask, “What’s management doing to the stock today?” Is that fair?

A: Two common misconceptions are that management somehow controls stock price and that they’re wholly focused on maximizing it in the short term. Neither is true. Clearly, company leadership can make sure investors understand Boeing’s strategy, performance and how we’re investing for the future. But, at the end of the day, it’s really fundamentals and market forces—and not Boeing President and CEO Harry Stonecipher or our Executive Council—that drive share price.

Q: So what can employees do to contribute?

A: Execute on programs, cut costs, reduce cycle time, increase productivity and develop new ideas for new businesses. Part of the equation, increasing earnings, is achieved by both cutting costs and growing revenues. It’s a lot easier to do it growing revenues than just by cutting costs.


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