By: Carter Copeland
We’ve seen the market reach some strange conclusions about relative value over the years, and have found that the easiest way to point them out is to remove the names and tickers from the analysis and simply present the numbers alongside one another to eliminate pre-formed biases. With this approach it’s easier to show when values are way out of whack. In 2016, LMT and BA had the same enterprise value even though BA had 50-80% more revenue, net income, and cash flow, and a measurably faster historical growth rate going back 50+ years. That disparity corrected itself pretty hard in 2017. In this note, we lay out some new valuation discrepancies in our A&D coverage that we think have real potential to reverse over time.