# Boeing Co. (BA)

## Dividend Discount Model (DDM)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

### Intrinsic Stock Value (Valuation Summary)

Boeing Co., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.66%
0 DPS01 6.84
1 DPS1 44.57 = 6.84 × (1 + 551.58%) 39.21
2 DPS2 230.24 = 44.57 × (1 + 416.61%) 178.23
3 DPS3 878.69 = 230.24 × (1 + 281.63%) 598.43
4 DPS4 2,167.36 = 878.69 × (1 + 146.66%) 1,298.68
5 DPS5 2,420.57 = 2,167.36 × (1 + 11.68%) 1,276.09
5 Terminal value (TV5) 136,744.25 = 2,420.57 × (1 + 11.68%) ÷ (13.66%11.68%) 72,089.82
Intrinsic value of Boeing Co.’s common stock (per share) \$75,480.46
Current share price \$386.41

Based on: 10-K (filing date: 2019-02-08).

1 DPS0 = Sum of last year dividends per share of Boeing Co.’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

### Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 2.15% Expected rate of return on market portfolio2 E(RM) 11.62% Systematic risk (β) of Boeing Co.’s common stock βBA 1.22 Required rate of return on Boeing Co.’s common stock3 rBA 13.66%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

3 rBA = RF + βBA [E(RM) – RF]
= 2.15% + 1.22 [11.62%2.15%]
= 13.66%

### Dividend Growth Rate (g)

#### Dividend growth rate (g) implied by PRAT model

Boeing Co., PRAT model

Average Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US\$ in millions)
Cash dividends declared 4,101  3,556  2,902  2,575  2,210
Net earnings related to parent 10,460  8,197  4,895  5,176  5,446
Revenues 101,127  93,392  94,571  96,114  90,762
Total assets 117,359  92,333  89,997  94,408  99,198
Shareholders’ equity 339  355  817  6,335  8,665
Ratios
Retention rate1 0.61 0.57 0.41 0.50 0.59
Profit margin2 10.34% 8.78% 5.18% 5.39% 6.00%
Asset turnover3 0.86 1.01 1.05 1.02 0.91
Financial leverage4 346.19 260.09 110.16 14.90 11.45
Averages
Retention rate 0.54
Profit margin 7.14%
Asset turnover 0.97
Financial leverage 148.56
Dividend growth rate (g)5 551.58%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-08), 10-K (filing date: 2016-02-10), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Retention rate = (Net earnings related to parent – Cash dividends declared) ÷ Net earnings related to parent
= (10,4604,101) ÷ 10,460 = 0.61

2 Profit margin = 100 × Net earnings related to parent ÷ Revenues
= 100 × 10,460 ÷ 101,127 = 10.34%

3 Asset turnover = Revenues ÷ Total assets
= 101,127 ÷ 117,359 = 0.86

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 117,359 ÷ 339 = 346.19

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.54 × 7.14% × 0.97 × 148.56 = 551.58%

#### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$386.41 × 13.66% – \$6.84) ÷ (\$386.41 + \$6.84) = 11.68%

where:
P0 = current price of share of Boeing Co.’s common stock
D0 = last year dividends per share of Boeing Co.’s common stock
r = required rate of return on Boeing Co.’s common stock

#### Dividend growth rate (g) forecast

Boeing Co., H-model

Year Value gt
1 g1 551.58%
2 g2 416.61%
3 g3 281.63%
4 g4 146.66%
5 and thereafter g5 11.68%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 551.58% + (11.68%551.58%) × (2 – 1) ÷ (5 – 1) = 416.61%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 551.58% + (11.68%551.58%) × (3 – 1) ÷ (5 – 1) = 281.63%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 551.58% + (11.68%551.58%) × (4 – 1) ÷ (5 – 1) = 146.66%