# Boeing Co. (NYSE:BA)

## Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.

### Intrinsic Stock Value (Valuation Summary)

Boeing Co., free cash flow to equity (FCFE) forecast

US\$ in millions, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at 17.68%
01 FCFE0 16,833
1 FCFE1 26,863 = 16,833 × (1 + 59.58%) 22,827
2 FCFE2 39,149 = 26,863 × (1 + 45.74%) 28,268
3 FCFE3 51,632 = 39,149 × (1 + 31.89%) 31,681
4 FCFE4 60,945 = 51,632 × (1 + 18.04%) 31,776
5 FCFE5 63,498 = 60,945 × (1 + 4.19%) 28,133
5 Terminal value (TV5) 490,340 = 63,498 × (1 + 4.19%) ÷ (17.68%4.19%) 217,247
Intrinsic value of Boeing Co.’s common stock 359,932

Intrinsic value of Boeing Co.’s common stock (per share) \$615.47
Current share price \$222.27

Based on: 10-K (filing date: 2021-02-01).

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 1.80% Expected rate of return on market portfolio2 E(RM) 11.71% Systematic risk of Boeing Co.’s common stock βBA 1.60 Required rate of return on Boeing Co.’s common stock3 rBA 17.68%

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).

3 rBA = RF + βBA [E(RM) – RF]
= 1.80% + 1.60 [11.71%1.80%]
= 17.68%

### FCFE Growth Rate (g)

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

Boeing Co., PRAT model

Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US\$ in millions)
Cash dividends declared —  4,628  4,101  3,556  2,902
Net earnings (loss) attributable to Boeing Shareholders (11,873) (636) 10,460  8,197  4,895
Revenues 58,158  76,559  101,127  93,392  94,571
Total assets 152,136  133,625  117,359  92,333  89,997
Shareholders’ equity (deficit) (18,316) (8,617) 339  355  817
Financial Ratios
Retention rate1 0.61 0.57 0.41
Profit margin2 -20.42% -0.83% 10.34% 8.78% 5.18%
Asset turnover3 0.38 0.57 0.86 1.01 1.05
Financial leverage4 346.19 260.09 110.16
Averages
Retention rate 0.53
Profit margin 0.61%
Asset turnover 0.78
Financial leverage 238.81

FCFE growth rate (g)5 59.58%

Based on: 10-K (filing date: 2021-02-01), 10-K (filing date: 2020-01-31), 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-12), 10-K (filing date: 2017-02-08).

2020 Calculations

1 Retention rate = (Net earnings (loss) attributable to Boeing Shareholders – Cash dividends declared) ÷ Net earnings (loss) attributable to Boeing Shareholders
= (-11,8730) ÷ -11,873
=

2 Profit margin = 100 × Net earnings (loss) attributable to Boeing Shareholders ÷ Revenues
= 100 × -11,873 ÷ 58,158
= -20.42%

3 Asset turnover = Revenues ÷ Total assets
= 58,158 ÷ 152,136
= 0.38

4 Financial leverage = Total assets ÷ Shareholders’ equity (deficit)
= 152,136 ÷ -18,316
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.53 × 0.61% × 0.78 × 238.81
= 59.58%

#### FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (129,986 × 17.68%16,833) ÷ (129,986 + 16,833)
= 4.19%

where:
Equity market value0 = current market value of Boeing Co.’s common stock (US\$ in millions)
FCFE0 = the last year Boeing Co.’s free cash flow to equity (US\$ in millions)
r = required rate of return on Boeing Co.’s common stock

#### FCFE growth rate (g) forecast

Boeing Co., H-model

Year Value gt
1 g1 59.58%
2 g2 45.74%
3 g3 31.89%
4 g4 18.04%
5 and thereafter g5 4.19%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 59.58% + (4.19%59.58%) × (2 – 1) ÷ (5 – 1)
= 45.74%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 59.58% + (4.19%59.58%) × (3 – 1) ÷ (5 – 1)
= 31.89%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 59.58% + (4.19%59.58%) × (4 – 1) ÷ (5 – 1)
= 18.04%