Boeing's (NYSE:BA) second-quarter earnings were very strong causing it to raise its 2013 guidance. However, nagging problems continue to plague the 787 Dreamliner. Is now the time to buy its stock? I'll have a look at the pros and cons.
All-Time High
Boeing hit its all-time high July 24 of $109.24. A public company for 51 years; it's interesting that it hit this significant plateau in a year in which the airplane manufacturer's 787 Dreamliner looked ready to go down in flames before it's even had had a chance to take to the skies in any great number. Fortunately for investors the company handled the lithium-ion battery fires on its planes with the utmost professionalism. 

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Grounded for 123 days, a United (NYSE:UAL) flight from Houston to Chicago May 20 signaled the plane was back in business. The manufacturer, by being upfront with its customers and the public, was able to avert a financial disaster. Sure, the airlines will receive compensation for its grounded planes but that pales in comparison to scrapping a program that's already delivered 66 aircraft since September 25, 2011, with 1,100 expected to be produced over the next 10 years. With a list price per 787-10 of more than $250 million, we're talking about $275 billion in top-line revenue. Even a billion in compensation to the airlines would be a drop in the bucket. 
Cash Rich
If you exclude pension contributions, Boeing's free cash flow increased 140% year-over-year in the second quarter to $3.15 billion. On an annual basis, its trailing twelve month free cash flow is $7.9 billion, a yield of 9.9% based on a share price of $105.60. With cash flow expected to increase in the coming quarters I'd expect to see the yield rise above 10%. Its balance sheet is equally impressive. It finished Q2 with net cash of $4.3 billion, an increase of $1.7 billion from the first quarter of 2013. With its annual capital spending likely around $2 billion, there's going to be a need for it to return more of its cash to shareholders in the form of share repurchases. In the first six months of 2013 it's bought back $1 billion of its stock with another billion expected in the second half. If its Q3 is anywhere near as good as its second quarter, I'd expect it to boost repurchases by as much as $3 billion in 2014. Needless to say this is a company without a shortage of cash. 

SEE: Free Cash Flow: Free, But Not Always Easy
Defense, Space & Security
About the only fly in the ointment for Boeing at this point appears to be its non-commercial aircraft, which includes military aircraft such as the F/A-18 fighter and AH-64 Apache helicopter. With defense spending cuts thought to be heading higher, the company has kept a lid on share repurchases up to this point to absorb any revenue shortfalls that could occur. However, even where revenues are slightly down year-over-year, the segment has still managed to increase operating profits. In Q2, revenues were $8.2 billion or flat year-over-year while its operating profits increased $28 million or 3.7% to $776 million. Though revenues showed little growth in the quarter compared to its commercial aircraft segment, it did manage to increase operating margins by 35 basis points. When you consider that its aerospace and defense peers have performed miserably in 2013, you have to look at its performance as a huge victory for the company. 
Bottom Line
The latest problem to hit Boeing involves wiring damage to emergency beacons made by Honeywell (NYSE:HON) that are installed in its 787 aircraft as well as several other models. Boeing has asked airlines to inspect something like 1,200 aircraft that are in service to better understand what the root cause of the problem is. Cynics will suggest that this is Boeing's problem. However, I see it as Honeywell's because if there hasn't been any problems up until now, Boeing wouldn't have a clue that there was a need to check and double-check the beacon's wiring. Like a lot of these mechanical issues, investors tend to jump to conclusions that are much too extreme. 
Boeing is expected to grow its earnings 13.2% per year over the next five years compared to 7.3% for Lockheed Martin (NYSE:LMT) and 2.2% for General Dynamics (NYSE:GD). When you consider that its PEG ratio of 1.23 is much cheaper than either of its peers its current valuation makes it very attractive despite being within 5% of an all-time high. 
Many consider Alan Mulally one of the best, if not the best, CEO's in America. So I think it's important for investors to remember that he bolted from Boeing in September 2006 to run Ford (NYSE:F) because he was passed over for the top job at Boeing, which went to Jim McNerney, the former CEO of 3M (NYSE:MMM). 
Since taking the job, Boeing's stock has achieved an annualized total return of 8.6%, only 140 basis points less than Ford. This steady performance should continue for some time. Now's a great time to buy its stock.

Disclosure: At the time of writing, the author did not own shares of any company mentioned in this article.