Should You Buy Boeing Stock Over This Aerospace & Defense Company?

BA: The Boeing Company logo
The Boeing Company

We believe that Boeing stock (NYSE: BA) is currently a better pick than General Dynamics stock (NYSE: GD), given its better prospects. Boeing is trading at a slightly higher valuation multiple of 2.0x trailing revenues, vs. 1.6x for General Dynamics. Looking at stock returns, BA has outperformed GD and the broader indices. While BA is up 12% in the last twelve months, GD is down 7%, and the S&P500 index is down 7%. There is more to the comparison, and in the sections below, we discuss why we believe BA stock will offer better returns than GD stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Boeing vs. General DynamicsWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. General Dynamic’s Revenue Growth Has Been Better Over The Recent Years

  • Boeing has seen better revenue growth of 6.9% over the last twelve months, compared to a 0.5% for General Dynamics.
  • However, looking at a slightly longer time frame, General Dynamics has fared slightly better, with its sales rising at an average growth rate of 0.1% to $39 billion in 2022, while Bowing saw its revenue decline at an average rate of -3.3% to $67 billion in 2022, compared to $77 billion in 2019.
  • The revenue decline for Boeing can primarily be attributed to the impact of the 737 Max grounding in 2019 and the Covid-19 pandemic on the company’s businesses, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis. Commercial Airplanes was the largest segment for Boeing, accounting for 57% of total sales in 2018, but the contribution dropped to 39% in 2022.
  • Boeing, over the recent past, has struggled to ramp up its production, impacting its deliveries. Supply chain disruption and labor issues for some suppliers further added to its woes. However, of late, it has seen a rise in deliveries. It delivered 480 airplanes in 2022, vs. 340 in 2021 and 157 in 2020, reflecting significant growth in recent years. This trend is expected to continue going forward, likely increasing sales for Boeing.
  • General Dynamics’ revenue growth has been led by ship construction and aircraft services, a trend expected to continue in the near term.
  • The ongoing Ukraine-Russia conflict has increased focus on the defense sector stocks. New business awards will likely drive the company’s performance in the near term, with possible increased defense spending, especially by NATO members.
  • Our Boeing Revenue Comparison and General Dynamics Revenue Comparison  dashboards provide more insight into the companies’ sales.
  • Looking forward, Boeing and General Dynamics are expected to see their revenue rise at a CAGR of 6% to 7% over the next three years.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. General Dynamics Is More Profitable

  • General Dynamic’s current operating margin of 10.7% is much better than -1.5% for Boeing.
  • This compares with 11.8% and -1.6% figures seen in 2019, before the pandemic, respectively.
  • Our Boeing Operating Income Comparison and General Dynamics Operating Income Comparison dashboards have more details.
  • General Dynamics’ free cash flow margin of 9% is better than 5% for Boeing.
  • Looking at financial risk, both companies are comparable. Boeing’s 46% debt as a percentage of equity is much higher than 18% for General Dynamics, but its 13% cash as a percentage of assets is also higher than 5% for the latter, implying that General Dynamics has a better debt position, but Boeing has more cash cushion.
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3. The Net of It All

  • We see that General Dynamics has demonstrated slightly better revenue growth over the recent years, is more profitable, and has a better debt position. On the other hand, Boeing has a more cash cushion and has seen better revenue growth over the recent quarters.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Boeing is currently the better choice.
  • The table below summarizes our revenue and return expectations for Boeing and General Dynamics over the next three years and points to an expected return of 31% for Boeing over this period vs. a 13% expected return for General Dynamics, implying that investors are better off buying BA over GD, based on Trefis Machine Learning analysis – Boeing vs. General Dynamics – which also provides more details on how we arrive at these numbers.

While BA stock may outperform GD, it is helpful to see how Boeing’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised by how counter-intuitive the stock valuation is for Marine Products vs. Amerco.

Despite higher inflation and the Fed raising interest rates, Boeing has risen 9% this year. But can it drop from here? See how low can Boeing stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2023
MTD [1]
YTD [1]
Total [2]
BA Return -2% 9% 34%
GD Return 1% -7% 33%
S&P 500 Return 1% 8% 86%
Trefis Multi-Strategy Portfolio 2% 10% 247%

[1] Month-to-date and year-to-date as of 4/19/2023
[2] Cumulative total returns since the end of 2016

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