Boeing Co (BA) Stock Is an Out-of-This-World Investment Play

“I’m convinced that the first person to step foot on Mars will arrive there riding on a Boeing rocket,” Boeing Co (NYSE:BA) CEO Dennis Muilenburg recently said at the What’s Next Tech Conference in Chicago. With that one sentence, Muilenburg set off a massive debate about space colonization and who’s going to get us there first — it also more eyes on Boeing stock.

Boeing Co (BA) Stock Is an Out-of-This-World Investment Play

SpaceX CEO Elon Musk feels his company is best equipped to make that happen; BA feels otherwise.

If you look at how each company is funding their Mars adventures, Muilenburg is right to feel this way. Boeing is being supplied with billions of dollars from NASA to build a next-generation rocket dubbed the Space Launch System that will get the Orion spacecraft to Mars sometime around 2035.

SpaceX is self-funded, currently contributing about 5% of its resources to the Mars rockets and spaceships. It’s projecting a Mars mission by 2024, well ahead of Boeing’s plans.

There’s only one problem with SpaceX’s current spending and future plans: the Mars mission is estimated to cost as much as $1.5 trillion.

Where is it going to get the money to pay for it? Musk has been able to woo NASA into becoming an investor in SpaceX itself. Perhaps they will fork over additional billions to Musk (as they’ve done with Boeing) playing both sides against the middle.

BA Has the Upper Hand

However, where we stand today, is that BA is the one with the contracts, not SpaceX. So, from that perspective, they’re ahead of the game at least when it comes to NASA. If you want to get to Mars you’re going to need them on your side.

But enough of the space talk. Putting all these hypotheticals aside, what does all of this mean for the current BA stock holder?

Very little.

Yes, it has contracts that were signed in 2014 regarding the SLS worth $3 billion that are ongoing through 2021; in the seven years prior to signing those contracts it also received an estimated $1.66 billion for preliminary work on the rocket. That’s almost $5 billion received before the project is even remotely close to completion. There will be more contracts and many more billions of dollars leading up to 2035.

But you have to take that in the context of the entire BA business.

In the first six months of 2016, Boeing generated $3 billion in free cash flow from $47.4 billion in revenue. Its backlog is $472 billion with nearly 5,700 commercial airplane orders. The SLS is practically a rounding error.

However, if you drill down into its Defense, Space & Security segment, you’ll get a better idea why a little long-term thinking vis-a-vis the SLS makes a whole lot of sense.

Space Exploration is housed within the Network & Space Systems division, which itself is one of three divisions that make up Boeing’s DS&S segment. In the first half of the year, N&SS generated operating earnings of $301 million on $3.5 billion in revenue. Normally, that’s about 8% to 10% of the company’s overall revenue. Over the last two fiscal years, its operating margins have increased by 100 basis points to 9.4%.

In 2015, NS&S had $7.8 billion in revenue, $726 million in earnings from operations, and a $7.4 billion contractual backlog. That’s about 20% of the backlog of its other two divisions — Boeing Military Aircraft and Global Services & Support — combined. When you add to this the fact NS&S has the smallest margins of the three divisions, you can’t help but fail to notice the possibilities Boeing stock provides.

Bottom Line on Boeing Stock

However, put your Warren Buffett cap on for a moment, and we’ve got the makings of a very good long-term hold in BA stock.

Let’s say Boeing does get a rocket and spaceship to Mars by 2035 and humans can actually withstand the radiation on the planet. Then what? Obviously, at some point, NASA and/or other space agencies are going to begin the initial stages of colonization. It could take another 100 years after that before we see something resembling a city or town.

That’s obviously too long-term for anyone currently alive.

However, that doesn’t mean BA investors can’t pass Boeing stock on to their kids and grandkids as a keepsake. More importantly, unlike the early car pioneers such as Ford Motor Company (NYSE:F), BA stock investors already get a company that’s nicely profitable.

Space colonization is coming. Why not ride Boeing stock all the way to the finish line?

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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