boeing equity report _final draft 3.0

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ResearchReportbyRashiJain&ShreyesShyamsunder

StudentEquityResearch

IndustrialGoods,Aerospace/Defense

Products&Services NewYorkStockExchange TheBoeingCompany

Date:12/19/2016 CurrentPrice:$156.49(12/05/16) Recommendation:BUY

Ticker-NYSE:BA Headquarters:Chicago,IL TargetPrice:$158.8USD

SharePriceMovement

Figure1:PriceMovements(BoeingvsS&P/Aerospace&Defense)

MarketProfile ClosingPrice $156.49 52-WeekHigh/Low $156.88/102.10 AverageVolume 3.544million DilutedSharesOut. 716million MarketCap $110803.8M DividendYield 3.30% Beta 1.2 P/E 21.5 EV/EBITDA 12.5 EPS 7.3 InstitutionalHoldings 73.12% InsiderHoldings 0.06% Valuation DCF Multiples EstimatedPrice 160.65 156.95

Weights 50% 50%

TargetPrice 158.8

Highlights WeinitiatecoverageonBoeing(BA)withaBuyrecommendationbasedonaone-yeartargetpriceof$158.8,offering1.48%upsidefromitsclosingpriceof$156.49onDecember5,2016.Ourrecommendationisprimarilydrivenby: • Company'slong-termopportunityinChinaandotheremergingmarkets.

Management’srecentestimateoftheChinaopportunityat$1.03trillionoverthenext20yearsreflectsthispotential.IfBoeing’sprojectionisrealized,Chinawouldbethefirsttrillion-dollaraviationmarketintheworld.Itexpectssingle-aislejetstobethebiggestdemanddriver,comprising75%ofthetotalprojection.Thistranslatesintodemandfor5,110single-aislejets,worth$535billion,inthenext20years.

• Boeingremainsontrackwiththe$52billionKC-46aerialtankerprogram.BoeingisexpectedtodelivertheU.S.AirForcewith18KC-46refuelingplanesbyAug2017.Boeingisscheduledtocompletedeliveryofall179aircraftby2027.

• Currently,thecompanyisproducing737atarateof42permonthandplanstoincreaseitto47permonthin2017.Boeingalsohasplanstoboost737outputto57airplanespermonthin2019from52permonthin2018withfirstdeliveryofthe737MAXexpectedin2017.Meanwhile,ithasstartedtheproductionrateof787-Dreamlinersat12permonthin2016andplanstoboosttherateto14permonthbytheendofthedecade.

• Boeing’sstrongbalancesheetandcashflowsprovidefinancialflexibilityinmattersofincrementaldividend,ongoingsharerepurchasesandearningsaccretiveacquisitions.Duringthefirstninemonthsof2016,Boeingpaid$2,084millionindividends(up10.7%fromtheprior-yearpayout)andrepurchased51.4millionsharesfor$6.5billion.

RecentNews • OnOct31st,Boeingdeclaredregularquarterlydividendof$1.09pershare,

payableonDec2nd,2016. • OnOct31st,BoeingtogetherwithIntrepidAviationannounceditsfirst

deliveryof777-300ERtobeleasedandoperatedbyPhilippinesAirlines,withfutureplansofdelivering8unitsbytheendof2016.

• OnOct27th,Boeingannouncedanorderfor14747-8Freighterswith

UPSincludinganoptiontopurchaseanadditional14ofthecargoairplanes.Thisneworderwithdeliveriesscheduledbetween2017and2020isworth$10.6billionifalloptionsareexercised.

• OnOct26th,Boeingannouncedthatithasconfirmedaneworderforone

777-300ER(ExtendedRange),valuedat$339.6millionwithSwissInternationalAirLines(SWISS).Thisisinrowof9previousorderswithSWISS,6outofwhichweredeliveredthisyear.

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• OnOct12,2016,Boeingannouncedthatithasinkedadealtoselladozenofits787-9DreamlinerjetstoChinaSouthernAirlinesCo.Ltd.AsperReuters,eachofthesemid-sizedcommercialjets,pricedat$271

KeyFinancialsandRatios 2013 2014E 2015E 2016E 2017E 2018E

TotalRevenue(1) $86,623 $90,762 $96,114 $93,551 $100,735 $106,401

NetOperating

Income(1)

6,562 7,473 7,443 7,430 7,979 8,413

NetProfitMargin 5.29% 6.00% 5.39% 5.52% 5.64% 5.71%OperatingMargin 7.58% 8.23% 7.74% 7.94% 7.92% 7.91%NOIMargin

InterestCoverage 17.00 22.44 27.07 25.01 30.76 36.80LTDebttoAssets 0.09 0.09 0.09

FFO/Share 14.13 11.17 5.25 19.75 8.05

ReturnonEquity 30.57% 61.96% 80.91% 71.55% 76.60% 102.60%

(1)InUSDMillions

Figure2:FFOperShare

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Source:CompanyData,TeamEstimates

Figure3:TotalRevenue

BusinessDescription Boeingisapremieraerospacecompanythatmanufacturescommercialjetlinersanddefense,spaceandsecuritysystems.HeadquarteredinChicago,companycatertodomesticandforeignairlines,UnitedStatesDepartmentofDefense(U.S.DoD),NationalAeronauticsandSpaceAdministration(NASA) ,Internationaldefensemarkets,CivilmarketsandCommercialsatellitemarkets .Withcustomersinmorethan150countriesBoeingemployees160,000peopleinUnitedStatesandandinmorethan65countries.

Thecompany’soperationsarebifurcatedinto5segments;• BoeingCommercialAirplanes(BCA)Segment;Thissegmentaccountingfor69%of

Boeing’stotalrevenue(2015)develops,producesandmarketcommercialjetaircraftsandproviderelatedservicestothecommercialairlineindustryworldwide.Thefamilyofcommercialjetaircraftproductionincludes737narrow-bodymodelandthe747,767,777and787wide-bodymodels withcontinueresearchanddevelopmenton787-10and737MAXderivativesandthe777Xprograms.

• BoeingDefense,Space&Security(BDS)Segment;Withthecontributionof32%of

totalcompany’srevenueasof2015,thissegmentcomprisesofBoeingMilitaryAircraftsegment,NetworkandSpaceSystemssegmentandGlobalServicesandSupportSegment.

• BoeingCapitalCorporation(BCC)Segment;BCCfacilitates,arranges,structuresand

providesselectivefinancingsolutionstocommercialairplanessegmentandgovernmentsegmentcustomers.BCCportfolioconsistsofequipmentunderoperatingleases,financeleases,notesandotherreceivables,assetsheldforsaleorre-leaseandinvestments.Thissegmentcontributed8%tothefirm’stotalrevenueasof2015.

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Figure 4: Aerospace & Defense Growth vs. S&P

Management&Governance • BoeinghasdistinctcodeofethicalbusinessethicalconductfortheBoardof

DirectorsaswellasaCodeofConductforFinanceEmployees.• Anotherimportantaspecttonoteisthatnofamilyrelationshipsexistamonganyof

theexecutiveofficers,directorsordirectornomineesasdeclaredbythecompany• Thecompanyhasaclearlydefinedequitycompensationplanfortheissuanceof

commonstocktoofficersandotheremployees,directorsandconsultants.• Ofthe12memberBoardofDirectors,5sitonboththeCompensationandthe

GovernanceOrganizationandNominatingCommitteewhiletherestofthe7membersareapartoftheAudit&FinanceCommittees.Wecannotefromtheaboveallocationthatdutieshavebeenclearlycutoutwithnointermixingofmembersbetweentherisk/auditandthegovernancecommittees.

• AsperBoeingsIndependentDirectorStandardstheyhavedeterminedthatatleast75%ofthemembersoftheBoardshallbeindependent.Inadditiontheyhavelaidoutaclear-cutsetofcriteriafordirectorindependencetorelevantandapplicable.

IndustryOverviewandCompetitivePositioning DemandDrivers Theaerospaceanddefense(A&D)industryprovidesdefense,space,homelandsecurity,andinformationtechnologyproducts.TheaerospaceindustryandBoeinginparticularisdrivenbytheoveralleconomicclimatewhilethedefenseindustryisdrivenbytheU.S.military budget and the global political landscape. The profitability of individualcompanies depends on technical expertise and their ability to secure long-termcontracts. The industry is highly concentrated and largely dependent on federalgovernmentspending. It iscyclicalandunpredictableduetouncertaintyof theannualgovernmentbudgetingprocessandelectioncycles.TheUSA&DmarkethasperformedwellinrecentyearsduetoanincreaseddefensebudgettofightterroristgroupsintheMiddleEast.Thesebudgetincreaseshavecounteredthedecliningcivilaerospacesector,whichsawadownturnintheend-userairlineindustryafterthe9/11terroristattacks.

Long-termairlinepassengerandcargotrends From an investor’s point of view it is very important to understand that growth inpassengerairlineandcargotrafficisanimportantdriverofdemandwhichistiedtotheperformance and growth of the airline industry. It is often reflected as increaseddemand for aircraft by the airline companies to cater to the increasing trend(specifically for Boeing’s revenue from its commercial segment). An importantmetrichereistheASM(AvailableSeatMiles),whichmeasurestheflight’srevenuegeneratingability given the amountof traffic.Another importantmetricof the airline industry isRPM(Revenue Passenger Mile) which shows the number of miles traveled by payingpassengers.Systemtrafficinrevenuepassengermiles(RPMs)isprojectedbytheFAAtoincreaseby2.6percentayearbetween2016and2036.Asaircarriersslowlyphaseouttheirolderandlessfuelefficientaircraft,demandiscertainlyexpectedtoclimbinthewakeofthesecompaniesstreamliningbusinessandcuttingcosts. Inaddition,astrongbacklogputsBoeingatapproximatelysevenyearsofproductionatcurrentrates.In the defense and security segment the industry is highly concentrated and largelydependentonfederalgovernmentspending.WithanewgovernmentpoisedtoentertheWhiteHouseinJanuary,wemightseeashiftinthegovernmentexpenditureondefenseand related activities. It seems as of now that the new government has promised anincrease in defense expenditure and overhaul the defense infrastructure in terms ofequipment,effectsofwhichwerereflectedintheupwardpushindefensestocksafter

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Figure5:P/ERatio

Source:CompanyData,TeamEstimates

theelectionresultswereout.BDSstillfacesstrongcompetitioninallmarketsegments,primarily from Lockheed Martin Corporation, Northrop Grumman Corporation,RaytheonCompany andGeneralDynamics Corporation. This,while non-US aerospaceand defense companies like Airbus and BAE Systems continue to penetrate into theAmericanmarketsbybankingand strengthening theirpresenceby collaboratingwithUS defense manufacturers. Boeing still boasts of a solid defense, space and securitybacklog of $58 billion with new and follow-on business that included awards fromNASAforthefirsttwocommercialhumanspaceflightsAirlineProfitabilityOverthelongtermthereisanexpectedincreaseinairpassengerandcargotraffic,butitisexpectedthatfareswon’tincreaseasfastasinflationthough.WecannotbesureofthisastheFedissettohikeratesassoonasDecemberthisyearwhichissurelygoingtoseeinflationpickup.Anti-trustimmunitymorespecificallyamongAmericancarriersmightleadtoanti-competitivepracticesinthelongrun.Thustheairlineindustrymightruntheriskofincreasedregulatoryscrutinywhichcouldaffectitsevolvingstructureandsubsequentlydemand.Thatbeingsaid,airlineprofitabilityisalsodriventoalargeextentbyfuelpriceswhichhasbeenconsideredasaseparatedemanddrivebelow.AircraftFinancing Financial pressures on carriersmay still remain a cause for concern. In addition, anyslowdown in economic growth in the US aswell as other regions in theworld couldseriously inhibit the growth of this industry by squeezing the avenues available forfinancing. Also, perceived economic and political uncertainties by carriers could pushthemtopostponetheiraircraftpurchases.Anotherdrivingfactorcouldbeashiftintheaircraftmixheldbyairlinecompanieswhichwouldnecessitatefinancingtocatertothatshift. FuelPrices EIAexpectsBrentcrudeoilpriceswillaveragecloseto$48/barrelinthefourthquarterof2016and$51/barrelinthefirstquarterof2017.Buttherecentvolatilityremindsusthereisstillconsiderableuncertaintyastothefuturedirectionofoilprices.Whilesomeforecastsoutlineasteadyincreaseintheoilpricesoverthenextfouryearsleadingupto2020,othershaveoutlinedrathersteadyormarginalincreaseinpricesoverthelongterm.Overthelongrun,loweroilpricesgiveconsumersanimpetusforadditionalspending,includingairtravel,andshouldenhanceindustryprofitability.RegulatoryEnvironment Forthenetworkcarriers,regulatoryauthoritiesareincreasingtheirscrutinyovercarrierpracticesincludingmergersandacquisitions.Anti-trustimmunitymorespecificallyamongAmericancarriersmightleadtoanti-competitivepracticesinthelongrunwhichwillcertainlybeanareathatisboundtoseemoreregulatoryoversight. CompetitivePositioning Thecommercialjetaircraftmarketandtheairlineindustryremainextremelycompetitive.Boeingfaceaggressiveinternationalcompetitorswhoareintentonincreasingtheirmarketshare,suchasAirbus,EmbraerandBombardier,andotherentrantsfromRussia,ChinaandJapan.BDSfacesstrongcompetitioninallmarketsegments,primarilyfromLockheedMartinCorporation,NorthropGrummanCorporation,RaytheonCompanyandGeneralDynamicsCorporation.Non-U.S.companiessuchasBAESystemsandAirbusGroup,continuetobuildastrategicpresenceintheU.S.marketbystrengtheningtheirNorthAmericanoperationsandpartneringwithU.S.defensecompanies.Inaddition,certaincompetitorshaveoccasionallyformedteamswithothercompetitorstoaddressspecificcustomerrequirements.Thistrendisexpectedtocontinuein2017.

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Figure6:Basicvs.DilutedEPS

Source:BoeingAnnualReports,TeamEstimates Figure7:P/ERatio

Source:BoeingAnnualReports,TeamEstimates

InvestmentSummary WeissueaBuyRecommendationonBoeingwithatargetpriceof$158.8usingaDiscountedCashFlowAnalysisandaRelativeMultiplesValuation.Thisvaluationissupportedbynumerousmerits,asoutlinedbelow,aswellasconcernstakenintoconsideration.MeritsSustainedDemandinCommercialAviation Boeingisthelargestaircraftmanufacturerintheworldintermsofrevenue,ordersanddeliveries, and is one of the largest aerospace and defense contractors. Its revenueexposure is spread across more than 90 countries around the globe. Demand forBoeing’scommercialairplanesisontheriseduetoasteadyimprovementinpassengerand freight traffic.Overall, Boeing anticipates the commercial fleet to double over thenext two decades to 45,240 airplanes by the end of 2035, backed by sustained 4.8%annualgrowthincommercialpassengertraffic.Forthat,theworldwillneed39,620newplanes, worth $5.9 trillion, between 2016 and 2035, per Boeing’s current marketoutlook. This is 4.1% above last year's projected demand of 38,050 jets, worth $5.6trillion,forthe2015–2034period.About38%ofthetotalcommercialdemandislikelyto come from the Asian markets, another 21% and 19% from North America andEurope,respectively,andthebalancefromtherestoftheworld. ImprovingFinancialPositionandIncrementalDividendYield Boeing’sstrongbalancesheetandcash flowsprovide financial flexibility inmattersofincremental dividend, ongoing share repurchases and earnings accretive acquisitions.Cashandinvestmentsinmarketablesecuritieswas$9.7billioninthethirdquarter,upfrom$9.3billionat secondquarterend.During the firstninemonthsof2016,Boeingpaid $2,084 million in dividends (up 10.7% from the prior-year payout) andrepurchased51.4millionsharesfor$6.5billion.SteadilyBuildingonProductionCapacity Currently,thecompanyisproducing737atarateof42permonthandplanstoincreaseit to47permonth in2017.Boeingalsohasplanstoboost737output to57airplanesper month in 2019 from 52 per month in 2018 with first delivery of the 737 MAXexpected in2017.Meanwhile, ithasstartedtheproductionrateof787-Dreamlinersat12permonth in 2016 andplans to boost the rate to 14permonthby the endof thedecade. ForaysIntoEmergingAviationMarkets(China&India) BoeinghasalreadybeenenjoyinganenormousflowofordersfromChina.Atthe2016Farnborough International Airshow in July, the company received an impressivenumber of orders − a commitment for 30 737 airplanes including the 737 MAX andNext-Generation737 fromanunidentifiedChinese customer,worth over $3billion atcurrentlistprices;aMemorandumofUnderstandingwithChina’sKunmingAirlinesfor10737MAX7airplanes;anorderfromYunnan-basedcarrierRuiliAirlinesfor6787-9Dreamliner,valuedat$1.59billionatcurrentlistprice.India appears to be another promisingmarket forBoeing. According to the company,thecountrywillneed1,850newplanesworth$265billionin20years,up6%fromtheyear-agoestimate.

ProductDiversification;AGrowthDriverforDefenseBoeing is also one of themajor players in the defense business. Its defense business

CompetitivePositioning BA UTX ARNC

LMT GD RTN NOC TDG COL

Price($) 147.69 108.41 18.45 257.27 166.51 147.71 245.17 269.42 85.43MarketCap(M$) 91,149 89,265 8,851 75,374 50,706 43,375 43,214 14,351 12,283Price/Earnings 22.48 23.72 NM 21.17 17.24 19.83 20.92 28.48 15.5NetSalesTTM($M) 94858 57421 20700 46413 30929 24159 23805 3105.98 5259NetIncomeTTM(M$) 4290 7320 -384 5247 2922 2238 2134 535.8 728

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stand

soutamongits

peersbyvirtueofi

ts broadly diversified programs, strong order bookings and order backlog. Thecompany’s third-quarter defense deliveries improved to 50 from48 a year ago. Totaldeliveries consisted of 19 AH-64 Apache helicopters (both new and remanufactured)and14Chinookhelicopters(newandrenewed).Thecompanyalsodelivered6F/A-18jets, 4 P-8models, 4 F-15s, 1Military Satellite, and 2 Commercial and Civil Satellites.Thiswillhelpthesegmenttoregisterhighertop-linegrowth.Boeing remains on trackwith the $52 billion KC-46 aerial tanker program. Boeing isexpected to deliver the U.S. Air Force with 18 KC-46 refueling planes by Aug 2017.Boeingisscheduledtocompletedeliveryofall179aircraftby2027.ApartfromtheKC-46aerialrefuelingtankerprogram,theneworganizationwillalsooverseethebuildingofthepresidentialaircraftfortheAirForcealongwiththeCST-100spacecraftforNASA.•Internationally,thecompanyiswitnessingstrongdemandforitscommercialaswellasdefenseproducts,suchas fighter jets, therotorcraft line-upand737-basedmilitaryderivatives.Thecompany isalsoexpanding itspresence incybersecurity, intelligenceand surveillance and unmanned systems, where growth rates are higher than theoverall defense budget. In a volatile budget environment, rising foreignmilitary salescontracts are more than welcome. In 2015, non-U.S. customers accounted forapproximately 59% of Boeing’s revenues. During the third quarter, internationaldemand remains strong, accounting for 38% of the quarter backlog and 27% of itsquarterlyBDSrevenues.

Concerns FutureGrowthConstrainedbyEscalatingCosts(Fixed-PriceContracts) BoeinggeneratesaconsiderablepercentageofitsBDSbusinessrevenuesfromfixed-pricecontracts(approximately72%of2015revenueswerefromfixed-pricecontracts).Itscommercialjetaircraftisalsosoldonafirmfixed-pricebasiswithanindexedpriceescalationclause.Asaresult,thecompanywillonlybeabletomakeaprofitifcostsstaywithinthecontractedprice.Also,thecompany’srevenuestreamfromthesaleofcommercialairlinerslargelydependsonahandfulofmajorcommercialairlineswhosefinancialhealthdictatestheperformanceoftheBCAsegment.DefenseSalesSubjecttoUSDefenseBudgetAgain,theprimarycustomerofthecompany’sBDSunitistheU.S.DoDwithapproximately62%ofBDS2015revenuesbeingderivedfromit(excludingforeignmilitarysalesthroughtheU.S.government).Budgetdeficitsanduncertaintyregardingnewgovernmentmakefuturedefensebudgetsvulnerabletocutbacks.Cost-EfficiencyParadoxInthefirstninemonthsoftheyear,Boeing’stotalshipmentswere708units,comparedwith726inthecorrespondingperiodlastyear.Ofthetotal,commercialdeliverieswere563(downfrom580intheyear-agoperiod),whiledefensedeliverieswere145units(downfrom146ayearago).InFeb2016,BCA’sChiefExecutiveRayConnerannouncedthatitsaimistoreducecostsandcompetewithitsEuropeanrivalAirbusGroupSEinaboomingbutfiercelycompetitiveindustry.Forthat,Boeinghaschalkedoutanewcost-cuttingpaththatwouldincludejobcutsatitslargestaswellasmostimportantbusinessunit–BCA.InSearchofFinancialAlternativesBoeinghasinthepastsignificantlybenefitedfromthesupportitreceivedfromtheExport-ImportBank(Ex-Im).AfterboostingU.S.exportsfornearlyeightdecades,thecreditagency’scharterendedinJun2015.PresidentObamasignedEx-ImBank'sreauthorizationonDec2015,whichwillbeineffectuntilSep30,2019.TheclosureoftheEx-ImBankwillundoubtedlybeasetbackforBoeingasthebankguaranteedasubstantialportionofitsforeignorders.About15%ofBoeing’scustomersuseEx-Imfinancing.Althoughitmaynotcreateanynear-termfinancialrisk,itmighthitBoeing’slong-termglobalcompetitiveness.

Figure8:YoYRevenueGrowth

Figure9:LongtermDebttoAssets

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FinancialAnalysis

FinancialCondition 2013 2014E 2015E 2016E 2017E 2018ENOI/EBITDAMargin 83.06% 84.63% 83.69% 83.67% 83.63% 83.61%

OperatingProfitMargin 7.58% 8.23% 7.74% 7.94% 7.92% 7.91%

NetProfitMargin 5.29% 6.00% 5.39% 5.52% 5.64% 5.71%

ReturnonAssets 4.95% 5.86% 5.48% 5.62% 6.11% 6.19%

ReturnonEquity 30.57% 61.96% 80.91% 71.55% 76.60% 102.60%

CurrentRatio 1.00 1.00 0.90 0.90 1.00 0.38

CashRatio 18.38% 21.53% 18.21% 17.49% 4.15% 3.25%

TotalAssetTurnover 0.93 0.98 1.02 1.02 1.08 1.08

FixedAssetTurnover

LongTermDebttoAsset 0.31 0.62 0.81 0.72 0.77 1.03

LongTermDebttoEquity 0.54 0.93 1.36 1.26 1.26 1.66

FinancialLeverage 55.61 36.22 33.45 34.96 40.16 35.87

InterestCoverage 17.00 22.44 27.07 25.01 30.76 36.80

DebtServiceCoverage 3.27 1.61 1.24 1.40 1.31 0.97

FFOperShare

14.13 11.17 5.25 19.75 8.05

DividendPayoutRatio

ROEDecomposition 2013 2014E 2015E 2016E 2017E 2018ENetProfitMargin 5.29% 6.00% 5.39% 5.52% 5.64% 5.71%

TotalAssetTurnover 93.48% 97.68% 101.81% 101.81% 108.35% 108.31%

FinancialLeverage 55.61 36.22 33.45 34.96 40.16 35.87

ROE 30.57% 61.96% 80.91% 71.55% 76.60% 102.60%

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Valuation ValuationPriceTarget:$158.8 Recommendation:Buy A number of valuationmethodologieswere utilized in deriving a target price for BA.Including a Discounted Cash Flow Methodology and Relative Multiple ValuationMethodology. DCFModel AdiscountedcashflowanalysiswasusedtoestimatetheintrinsicvalueofBoeingsharepriceduetothepredictabilityofcashflowsinrelationtogrowthandprofitability.Theprimarymodel is forecasted three years. Thismodel is driven by free cash flow. Freecash flow represents cash profits plus changes in working capital less capitalexpenditure. Thismodel generated theprice of $160.65. Thebase case for thismodelwas formulated using guidance from historical performance, industry outlook, anassessment of Boeing’s competitive positioning, and company guidance on expansion,revenue, and earnings growth. TheDCF ismost sensitive to the following factors, thederivationsofwhichareexplainedbelow:WeightedAverageCostofCapital(WACC) BetawascalculatedusinglinearregressionsofBoeingstockpriceagainsttheS&P500for10-yearmonthlydata.CAPMwasusedtoestimateCostofEquity,whileariskfreerateplusabondspreadwasusedtocalculateCostofDebt.Thetargetcapitalstructureof45%equityand55%debtisutilized(Table2). TerminalGrowth As industrycharacteristicscontinueto improveandwill reacha terminalgrowthratelittle less thanexpected inflation to1.8%,whichwasaccounted for in the3yearDCFmodel.RelativeValuation

RelativevaluationwasprimarilyfocusedonanEV/EBITDAmultiple.Thisisdueto:

1) SimilartrendinHistoricalmultiplemovements(figure10)2) EV/EBITDAmultipleisusedinconjunctionwithP/ERatioof21.5(2016)to

determinethefairmarketvalueofaBoeing.3) TheimportanceofEBITDAasacomparablepre-interest,pre-depreciationand

amortizationcashflowfigure.Thisanalysisleadstoanintrinsicvalueof$156.95forBoeing,a0.294%premiumtothecurrenttradingprice.DuetothepremiumweremainconfidentthatthisvaluationreaffirmsourBuyrecommendationandvalidateourtargetprice$158.8.

.

:

WACCAnalysis Years1 RiskFreeRate 2.22% S&P500AdjustedBeta 1.20 MarketRiskPremium 7.78% RequiredReturn 11.56% TaxRate 27.6% CostofDebt 3.75%

WeightofDebt 55% WeightofEquity 45% WACC 6.693%

EVFromEBITDAMultiple 110,803.8less;netdebt 2.9Equityvalue 110,800.9Shareoutstanding 706IntrinsicValuepershare 156.941785

Figure10:HistoricalEV/EBITDA

Table3:WACCAnalysis

Table4:EV/EBIDTA

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boeing equity report _final draft 3.0

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