Is Boeing Enticing After Recent Headlines?

With shares of Boeing (NYSE:BA) trading around $135, 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.

To say Boeing had a rough start with its 787 Dreamliner is like saying General Motors (NYSE:GM) has seen better years — it’s a heck of an understatement. After years of production delays, Boeing’s revolutionary jet was soon plagued by issues, not the least of which was battery problems that grounded the fleet of Dreamliners for several weeks, costing airlines millions. Once that was patched up, other issues sprouted — it seemed like there was a 787 making emergency landings somewhere in the world every week, from Norway to Japan. After a couple of rather peaceful and incident-free months, though, it appears that the Federal Aviation Administration is finally willing to lift some of the restrictions that were imposed on the aircraft in the wake of the issues. This included a measure forbidding operators to fly the 787 to airports that were more than three hours away, in the event that something occurred in flight. Now, the FAA’s new clearance will allow airlines to operate their 787s on trips as long as five and a half hours long, and make more direct routes, which will help cut fuel consumption.

“Our customers are eager to expand their 787 operations,” Larry Loftis, Boeing’s general manager for the Dreamliner program, said in a statement, quoted by Bloomberg. “We’re delighted that this capability, which was designed into the airplane from the very beginning, has been certified.” The 787 represents many firsts in commercial aerospace (its lithium in batteries come to mind), and it’s therefore unsurprising that the bugs have taken a while to be worked out. That doesn’t make it any less of a burden for already cash strapped airlines, who see the 787 as a key to lowering future flying costs thanks to its lightweight composites and fuel-efficient engines.

T = Technicals on the Stock Chart are Strong

Boeing stock has been trending higher over the past couple of months. The stock is currently surging higher and looks poised to continue. 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

17.69%

10%

8%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July 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 small 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 = Average 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

-1.33%

9.36%

-5.31%

4.26%

2.74%

Boeing has been an average 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 Federal Aviation Administration is finally willing to lift some of the restrictions that were imposed on the aircraft. The stock has been trending higher over the past couple of months and looks poised to continue. 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 an average year-to-date performer. Look for Boeing to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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