Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Boeing is a Great Value Investment for Ecommerce

The words ecommerce and Boeing (NYSE: BA) don’t normally go together but maybe they should. Ecommerce and the rise of Amazon (NASDAQ: AMZN) might add a lot of money to the historic aircraft maker.

Amazon is actually talking to Boeing about buying new 767 wide-body freightliners for its own airline, The Seattle Times reported back on March 9, 2016. On the same day Amazon announced plans to lease 20 used 767s from Air Transport Services Group (ATSG).

Amazon was also trying to buy 49% of ATSG in an attempt to take more control of its logistics, The Seattle Times revealed. The Everything Store also has plans to increase the size of its network to 100 planes.

Why Amazon wants to take to the Air

Setting up its own air-logistics network makes a lot of sense for Amazon because it would have more control over its logistics infrastructure. A major goal of the new network would be to reduce costs and keep the fulfillment centers full particularly at Christmastime.


Another reason to set up an Amazon air force is to enable the company to expand and fight off a growing threat from aggressive competitors like Walmart (NYSE: WMT). Walmart is ramping up its online capabilities through the purchase of and the hiring of that company’s CEO Mark Lore as its new ecommerce boss. The world’s largest retailer is also effectively leveraging its stores as bases for services like same-day delivery and order online/pickup instore.

Amazon is negotiating with Boeing for the purchase of new 767 airliners which are currently only being built for FedEx (NYSE: FDX), an anonymous source told The Seattle Times.  A new 767 cargo jet costs between $70 and $80 million’ but the price is spread out over several years, which can generate a lot of float.

The anonymous source claimed that Amazon had balked at the price tag but Boeing seems to be sure of the deal. Boeing employees told The Seattle Times that the company is trying to open up some production slots at the company’s factory in Everett, Washington; where the 767 is built.

Amazon’s Air Force Would be Good News for Boeing

It goes without saying that Amazon’s air force would be great news for Boeing. If Amazon were to order 100 new 767s that would generate $7 to $8 billion in additional revenue for the aircraft maker.


It would also give competitors like Walmart a strong incentive to launch their own air forces. That would create even more potential customers for Boeing’s air freighters.

Boeing also demonstrates a classic value investment strategy, long embraced by Warren Buffett. Don’t buy the high-profile company that’s really successful; buy the company that supplies; or supports, the big name.

Why Boeing is a better Buy than Amazon

This certainly makes a lot of sense in Boeing’s case; it is a cheaper stock than Amazon and a better stock than the Everything Store. On September 23, 2016, Amazon was trading at $805.20 a share; while Boeing was selling for $131.83 a share.

More importantly Boeing delivered a dividend yield of 3.2% while Amazon paid no dividend. Boeing’s investors took home a dividend of $1.09 on August 10, 2016. That dividend has been growing for quite some time; it was 91¢ on August 5, 2015, 73¢ on August 6, 2014, and 48.5¢ on August 7, 2013. That means Boeing’s dividend has nearly doubled in the past three years.

767 Factory - Everett WA K65261-02
767 Factory – Everett WA

What is even better is Boeing’s return on equity which was 77.5% on June 30, 2016. In comparison, Amazon’s return on equity was 14.02% on the same day. This means Boeing is a far better income stock than Amazon and a pretty good dividend stock.

Does Boeing Make Money?

Boeing also makes a lot of money, it reported a net income of $3.715 billion, revenues of $96.18 billion, a free cash flow of $2.563 billion and $10.44 billion on June 30, 2016.

All that cash gave Boeing a lot of float; it reported $9.265 billion in cash and short-term investments and $89.61 billion assets on June 30, 2016. In other words, Boeing looks like a really good value stock.

More importantly, its prospects for the future are very bright because ecommerce is continuing to grow dramatically. Statista projected that global ecommerce is expected to grow by 22.7% in 2016, 21.9% in 2017, 20.7% in 2018 and 18.7% in 2019. All that stuff is going to need to get the customer and a lot it will go by air.

That means more planes, which means more orders for Boeing; no matter who owns the air freighters. If it is not Amazon it might be UPS (NYSE: UPS), FedEx, Walmart or even Alibaba (NYSE: BABA). Since a 767 air freighter costs between $70 and $80 million apiece that’s a lot of potential revenue for Boeing.

If you are looking for a company to invest to take advantage of the ecommerce boom; Boeing is a far better deal than Amazon. Even if Amazon’s air force fails to fly; Boeing is still going to make a lot of money from online retail.