Should You Take a Chance With Boeing?

With shares of Boeing (NYSE:BA) trading around $129, 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 today announced that it is in the final phases of testing and production readiness of a new method for building 777 fuselages as part of its ongoing technology investment strategy. Known as the Fuselage Automated Upright Build, or FAUB, this Advanced Manufacturing technology improves workplace safety and increases product quality. This technology has been in development by Boeing since 2012. With this new technology, fuselage sections will be built using automated, guided robots that will fasten the panels of the fuselage together, drilling and filling the more than approximately 60,000 fasteners that are today installed by hand. FAUB offers numerous benefits including an improvement in employee safety. The nature of the drilling and filling work makes it ideal for an automated solution. More than half of all injuries on the 777 program have occurred during the phase of production that is being automated. In addition, the automated system is expected to reduce build times and improve first-time quality of the build process.

“This is the first time such technology will be used by Boeing to manufacture widebody commercial airplanes and the 777 program is leading the way,” said Elizabeth Lund, vice president and general manager, 777 program and Everett site, Boeing Commercial Airplanes. “We’re excited to continue improving the production process here and we’re positioning ourselves to begin building 777X airplanes in the future.” The 777 program has already begun testing FAUB at a facility in Anacortes, Wash. Production readiness preparations are underway and the system will be installed in Everett in a new portion of the main factory that is under construction now. The technology is expected to be implemented in the next few years. The robotic system, designed for Boeing by KUKA Systems, is the latest in a series of strategic Advanced Manufacturing moves on the 777 program, which have already included new systems for painting wings and other drilling operations.

T = Technicals on the Stock Chart Are Mixed

Boeing stock has struggled to make positive progress in recent times. However, 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 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

23.14%

86%

84%

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

August Options

Average

Average

September 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

2013Q2

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

-6.15%

7.83%

-1.32%

6.16%

2.63%

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 today announced that it is in the final phases of testing and production readiness of a new method for building 777 fuselages. The stock has struggled to make positive progress, but is currently surging higher. 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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