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The Boeing Company (BA) vs. The Kraft Heinz Company (KHC): Breaking Down the Aerospace/Defense Products & Services Industry’s Two Hottest Stocks

The Boeing Company (NYSE:BA) shares are up more than 10.58% this year and recently decreased -3.06% or -$10.28 to settle at $326.12. The Kraft Heinz Company (NASDAQ:KHC), on the other hand, is down -22.15% year to date as of 04/06/2018. It currently trades at $60.54 and has returned -2.81% during the past week.

The Boeing Company (NYSE:BA) and The Kraft Heinz Company (NASDAQ:KHC) are the two most active stocks in the Aerospace/Defense Products & Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect BA to grow earnings at a 18.10% annual rate over the next 5 years. Comparatively, KHC is expected to grow at a 7.28% annual rate. All else equal, BA’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 29.73% for The Kraft Heinz Company (KHC). BA’s ROI is 64.30% while KHC has a ROI of 5.40%. The interpretation is that BA’s business generates a higher return on investment than KHC’s.

Cash Flow



The value of a stock is simply the present value of its future free cash flows. BA’s free cash flow (“FCF”) per share for the trailing twelve months was +2.69. Comparatively, KHC’s free cash flow per share was -0.39. On a percent-of-sales basis, BA’s free cash flow was 1.7% while KHC converted -1.81% of its revenues into cash flow. This means that, for a given level of sales, BA is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. BA has a current ratio of 1.20 compared to 0.70 for KHC. This means that BA can more easily cover its most immediate liabilities over the next twelve months. BA’s debt-to-equity ratio is 31.32 versus a D/E of 0.48 for KHC. BA is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BA trades at a forward P/E of 19.52, a P/B of 543.53, and a P/S of 2.12, compared to a forward P/E of 14.94, a P/B of 1.12, and a P/S of 2.85 for KHC. BA is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. BA is currently priced at a -15.69% to its one-year price target of 386.83. Comparatively, KHC is -22.12% relative to its price target of 77.73. This suggests that KHC is the better investment over the next year.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. BA has a short ratio of 1.11 compared to a short interest of 4.61 for KHC. This implies that the market is currently less bearish on the outlook for BA.

Summary




The Kraft Heinz Company (NASDAQ:KHC) beats The Boeing Company (NYSE:BA) on a total of 7 of the 14 factors compared between the two stocks. KHC is growing fastly and has lower financial risk. In terms of valuation, KHC is the cheaper of the two stocks on an earnings and book value, KHC is more undervalued relative to its price target. Finally, GDI has better sentiment signals based on short interest.

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