Is Boeing a Risky Investment?

With shares of Boeing (NYSE:BA) trading around $122, 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.

The U.S. Federal Aviation Administration (FAA) and Boeing have completed a comprehensive review of the 787′s critical systems. The review concludes that the 787 meets the intended high level of safety expected by the FAA and Boeing. The report includes recommendations aimed at further strengthening the FAA and Boeing’s processes.

T = Technicals on the Stock Chart Are Mixed

Boeing stock has struggled to make significant progress over the last couple of months. 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 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

24.66%

56%

53%

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

Put IV Skew

Call IV Skew

April Options

Average

Average

May 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 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

28.77%

11.85%

11.02%

18.03%

Revenue Growth (Y-O-Y)

6.65%

10.61%

9.05%

-2.53%

Earnings Reaction

-5.33%

5.33%

-0.77%

3.00%

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

-10.30%

7.42%

-17.50%

6.74%

-2.41%

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 U.S. Federal Aviation Administration and Boeing have completed a comprehensive review of the 787′s critical systems. The stock has struggled to make significant progress and is currently pulling back. Over the last four quarters, earnings and revenue figures have increased, which has pleased investors. Relative to its peers and sector, Boeing has been an average year-to-date performer. WAIT AND SEE what Boeing does this quarter.

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