Will Recent News Hurt Boeing’s Stock?

With shares of Boeing (NYSE:BA) trading around $126, 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 train derailment in Montana this week damaged a shipment of jetliner fuselages and other large parts on its way to Boeing factories in Washington state from Spirit Aerosystems (NYSE:SPR), Boeing said on Saturday. It was not yet known if the accident might affect production of planes, the company said. Boeing’s production depends on a complex supply chain that deliver many parts just in time for assembly, but the company often has the ability to prevent minor problems in logistics from idling its factories. Boeing said a BNSF Railway train loaded with six 737 narrowbody fuselages and assemblies for its 777 and 747 widebody jets derailed in Montana while in route from Wichita on Thursday. A total of 19 cars in the 90-car train derailed in the incident about 18 miles (30 km) east of Superior, Montana, said Rail Link Montana. The rail company links with BNSF to carry freight from Billings in southern Montana through the state to Spokane, Washington where it links back to BNSF. Of the derailed cars, three cars carrying 737 plane fuselages went down an embankment and into the Clark Fork River.

Boeing declined to comment on whether it would seek a second source for the fuselages, as some industry experts have suggested. The cause of the derailment was not yet known, said Montana Rail Link spokesperson Lynda Frost, but added that speed was not considered to be an issue. There is a 35 mph (48 kph) speed limit on that section of the track, which is curvy as it tracks the Clark Fork, she said. The line was being reopened on Saturday afternoon, Frost said. There were no injuries in the accident. Boeing said it had experts at the scene “to begin a thorough assessment of the situation.” Montana Rail Link had called in three contractors to undertake the recovery of the derailed cars, Frost said, but she did not have details of the state of the freight in the derailed cars. Montana Rail Link, a privately-held company, is investigating the cause of the accident.

T = Technicals on the Stock Chart Are Mixed

Boeing stock has struggled to make positive progress in recent times. The stock is currently trading sideways 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 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

22.99%

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

August Options

Steep

Average

September 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 had conflicting feelings about 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

-6.97%

5.79%

-2.38%

4.33%

1.19%

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. A train derailment in Montana this week damaged a shipment of jetliner fuselages and other large parts on its way to Boeing factories in Washington state. The stock has struggled to make positive progress and is currently trading sideways. Over the last four quarters, earnings and revenue figures have increased. However, investors have had conflicting feelings about recent earnings announcements. 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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