Is US Airways Risky After Recent News?

With shares of US Airways (NYSE:LCC) trading around $15, is US Airways 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

US Airways operates and owns passenger and freight airline carriers. Consumers and companies across the nation are now looking to travel at an increasing rate. Since air travel is quicker and less expensive, it is becoming a common transportation method for many. As costs decrease and flights become more efficient, look for business and retail customers to fly more than ever.

Recently, US Airways posted earnings and revenue figures that beat Wall Street’s expectations, which is now generating positive buzz for the company. The United States is looking to block American Airlines’s merger with US Airways in an antitrust suit that upends plans to exit bankruptcy through a deal that would create the world’s biggest airline.

T = Technicals on the Stock Chart are Mixed

US Airways stock has been surging higher in recent years. However, the stock is breaking down on news that a merger with American Airlines will not go through. 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, US Airways is trading between its key averages which signal neutral price action in the near-term.

LCC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of US Airways options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

US Airways Options

62.29%

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

September Options

Steep

Average

October 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 Mixed 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 US Airways’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for US Airways look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-9.09%

-7.14%

63.41%

202.40%

Revenue Growth (Y-O-Y)

2.96%

3.45%

3.90%

2.82%

Earnings Reaction

2.49%

5.02%

1.48%

2.31%

US Airways has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been pleased with US Airways’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has US Airways stock done relative to its peers, Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), and sector?

US Airways

Southwest Airlines

Delta Air Lines

United Continental

Sector

Year-to-Date Return

16.96%

30.18%

60.24%

27.42%

25.84%

US Airways has been a poor relative performer, year-to-date.

Conclusion

US Airways is an airline that operates passenger and freight planes. A recent earnings announcement is generating positive buzz among investors, however, a proposed merger with American Airlines may be blocked by the United States Government. The stock has been flying higher in recent years but is now breaking down a bit. Over the last four quarters, investors in the company have been pleased as earnings have been mixed and revenues have been rising. Relative to its peers and sector, US Airways has been a poor year-to-date performer. WAIT AND SEE how recent new affects US Airways.

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.