Should You Take a Chance With Boeing?

With shares of Boeing (NYSE:BA) trading around $127, 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.

Over the past several years, the focus of the aviation world has been set on the new Boeing Dreamliner, which has been marred by problem after problem. But according to Kazakhstan-based carrier Air Astana, the company is set to unveil plans for a new mid-sized aircraft that will fill the hole in Boeing’s lineup vacated by the 757 when its production ended in 2005. Air Astana had been speaking with Boeing about the new model, and is eager to buy it, according to Bloomberg. Discussions between the two companies occurred at the International Air Transport Association annual meeting early in June, and Air Astana president Peter Foster came away confident Boeing will build the aircraft. “They made absolutely clear that this is now firming up and that they’ll be making an announcement soon,” Foster said.

Following the 757′s discontinuation almost ten years ago, there has been a hole in the aircraft-makers lineup. Boeing is hard at work on the new 737 Max, which has yet to hit the market, and has been famously trying to get the Dreamliner in the sky and shipped to customers. But if the interest shown by Air Astana and many other carriers is any indication, mid-range, mid-sized aircraft may be where the market is turning. As many carriers’ fleets of mid-range planes begin to age, the market is opening up and waiting for a replacement. It’s been unknown whether or not Boeing would willing to jump into the fray. Also speaking with Bloomberg, Boeing spokesperson Doug Alder didn’t confirm or deny that the company was set to announce a new addition to its product offerings, but that it was keeping an eye on the market. “We continue to watch trends and speak to our customers to determine what the market will require in the years to come,” he said. “Today, we’re very focused on our current development programs: the 777X, the 737 Max, and the 787-10.”  If interest in a 757 successor is not just limited to foreign carriers, which it is most likely not, Boeing could have a giant opportunity on its hands.

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 stabilize. 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 below its rising key averages which signal neutral to bearish 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

21.29%

96%

94%

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

Steep

Average

August Options

Steep

Average

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

-6.94%

8.48%

-0.29%

4.36%

2.40%

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. According to Kazakhstan-based carrier Air Astana, the company is set to unveil plans for a new mid-sized aircraft that will fill the hole in Boeing’s lineup vacated by the 757. 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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