Can Boeing Soar Higher?

With shares of Boeing (NYSE:BA) trading around $132, is BA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Boeing is an aerospace company. It focuses primarily on engineering, information technology, research and development, test and evaluation, technology strategy development, environmental remediation management, and intellectual property management. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital Corp.

Boeing said it will retain Japanese companies such as Mitsubishi Heavy Industries Ltd, Kawasaki Heavy Industries Ltd and Fuji Heavy Industries Ltd as key partners in its commercial aircraft business, awarding them a 21 percent workshare of its latest jetliner, the 777X. Five Japanese companies will build fuselage sections, bulkheads, landing gear and center wing sections, and other parts for the aircraft that is slated to go into service at the end of the decade, Boeing said in a release on Thursday. The workshare on the 777X is on a par with the 21 percent of the 777 that Japanese firms have been fabricating since 1995, and in line with what sources familiar with the plan told Reuters in April.

The share, however, is lower than the 35 percent of the carbon fiber 787 Dreamliner built in Japan, including the wings, a level of participation that Japanese firms may struggle to win in the future, industry analysts say. After difficulties managing its extended 787 global supply chain that delayed deliveries, Boeing is taking a more conventional approach to building the 777X, which unlike the all-carbon fiber Dreamliner will have a metal fuselage. The wings will be made by Boeing in the United States. Mitsubishi Heavy, according to sources who spoke to Reuters last year, made a failed eleventh hour bid to win the wing business when workers in the U.S. at first rejected a labor deal that would have secured the build in Washington state.

T = Technicals on the Stock Chart are Mixed

Boeing stock has been trending higher over the past couple of months. However, the stock is currently pulling back and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Boeing is trading above its rising key averages which signal neutral to bullish price action in the near-term.

BA

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Boeing options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Boeing options

18.09%

43%

40%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Boeing’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Boeing look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-11.11%

28.77%

11.85%

11.02%

Revenue Growth (Y-O-Y)

8.31%

6.65%

10.61%

9.05%

Earnings Reaction

2.41%

-5.33%

5.33%

-0.77%

Boeing has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Boeing’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Boeing stock done relative to its peers, Lockheed Martin (NYSE:LMT), Spirit Aerosystems (NYSE:SPR), Northrop Grumman (NYSE:NOC), and sector?

Boeing

Lockheed Martin

Spirit Aerosystems

Northrop Grumman

Sector

Year-to-Date Return

-3.23%

10.23%

-2.14%

5.50%

3.59%

Boeing has been a poor relative performer, year-to-date.

Conclusion

Boeing is an aerospace company and provider of aircrafts and related products and services to corporations and governments worldwide. The company said it will retain Japanese companies such as Mitsubishi Heavy Industries Ltd, Kawasaki Heavy Industries Ltd, and Fuji Heavy Industries Ltd as key partners in its commercial aircraft business. The stock has been trending higher over the past couple of months, but is currently pulling back. Over the last four quarters, earnings and revenue figures have increased, which has left investors pleased. Relative to its peers and sector, Boeing has been a weak year-to-date performer. WAIT AND SEE what Boeing does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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