Is Boeing an Attractive Investment?

With shares of Boeing (NYSE:BA) trading around $130, 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.

A Boeing project to build three satellites for Mexico is complete. Once the final two are sent to space by 2016, the country’s government communications will rival U.S. capability. The program, dubbed Mexsat, was signed in 2010, about a $1 billion agreement. The fourth-generation hardware was built and now waits in El Segundo at the company’s satellite factory, which was once a Nash Rambler automobile manufacturing facility. The network’s purpose is to provide services for military, police and emergency services. Paul Weisbrich, an aerospace mergers and acquisitions expert for D.A. Davidson & Co., said Mexico’s new network will be cutting edge. “Almost every country wants to have its own satellite system because if you don’t have one, you’re like someone trying to hail a cab,” Weisbrich said

Boeing made two 702HP geomobile satellites and contracted the third to Orbital Sciences Corp., which made GEOStar-2 for non-mobile communications. Orbital’s hardware went to space on an Ariane 5 in December of 2012. Bill Ostrove, an aerospace and defense analyst at Connecticut based consulting firm Forecast International, said this project represents diversification for the company. “Boeing is very big in large geosynchronous communication satellites, but they tend to focus on the U.S. government projects and large commercial satellite operators,” he said. The satellites, which last about 15 years, were named to celebrate milestones in Mexican history. Bicentenario, built by Orbital, honors Mexico’s independence from Spain; Centenario, the 100th anniversary of the Mexican Revolution; and Morelos-3 was named after the first Mexican satellites in space. Two ground stations, located in Iztapalapa and Hermosillo, were included in the contract and will relay space-based signals. Those signals will interface with terminals based on ships and satellite phones with antennae about the size of a cigar. Once deployed, the Boeing satellites will be more than 134 feet long and suck up sunlight through five-panel solar wings. The 702HPs will extend an antennae roughly the size of a high school basketball court to send signals to Earth.

For Boeing, the project is the revival of an old partnership. The company has already provided Mexico with five satellites dating back to 1985. The last one before the new crop was launched in 1998 and remains in service today. Boeing will launch its next satellite for Mexico early next year on a Russian Proton-M rocket, and the final piece of the network on an Atlas V by 2016. Ron Dukat, who directed the Mexsat program for Boeing, said that while Europe is pretty well wired, many gaps remain elsewhere around the globe. Indeed, fellow aerospace giant Lockheed Martin (NYSE:LMT) did a deal with Vietnam, completing the second of two satellites in the summer of 2012. China has been among the most active in building satellites, providing space communications hardware to developing nations such as Nigeria, Pakistan and Sri Lanka. “With all the remote areas that still exist around the world, we see that there is a future for these type of systems,” Dukat said.

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 between its rising key averages which signal neutral 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

19.28%

83%

80%

What does this mean? This means that investors or traders are buying a very significant 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

Average

Average

August Options

Average

Average

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

-4.50%

10.09%

-0.82%

6.16%

3.73%

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 project to build three satellites for Mexico is complete. 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. Look for Boeing to OUTPERFORM.

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

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