Are Dreamliner Problems Affecting Boeing?

With shares of Boeing (NYSE:BA) trading around $117, 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 is facing more concerns over its 787 Dreamliner. Polish airline LOT was forced to land a 787 in Iceland on Sunday because of an “air identification system fault,” Reuters reports. LOT has faced several difficulties with its Boeing 787s, including two flights that were delayed last week when it was discovered that the craft lacked gas filters. Norwegian airline Norwegian Air Shuttle also took one of its Dreamliners out of service over the weekend and has asked Boeing to repair the craft after it suffered repeated breakdowns. LOT is demanding compensation from Boeing over losses caused by the 787′s mechanical issues.

T = Technicals on the Stock Chart Are Strong

Boeing stock has been flying higher in recent quarters. The stock is now trading at all-time highs 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 above its rising key averages, which signals neutral to bullish price action in the near term.

BA

Source: Thinkorswim

Taking a look at the implied volatility 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

28.42%

96%

95%

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

October Options

Flat

Average

November Options

Flat

Average

As of Monday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish 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 bullish over the next two months.

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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

11.02%

18.03%

-30.91%

-7.53%

Revenue Growth (Y-O-Y)

9.05%

-2.53%

14.05%

12.87%

Earnings Reaction

-0.77%

3.00%

1.27%

-0.15%

Boeing has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Boeing’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Boeing stock done relative to its peers, Lockheed Martin (NYSE:LMT), Spirit Aerosystems (NYSE:SPR), and Northrop Grumman (NYSE:NOC), and sector?

Boeing

Lockheed Martin

Spirit Aerosystems

Northrop Grumman

Sector

Year-to-Date Return

55.93%

38.43%

43.13%

41.36%

40.27%

Boeing has been a relative performance leader, 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 is facing more concerns with its 787 Dreamliner. However, the stock has been surging higher and is currently trading near all-time high prices. Over the last four quarters, earnings have been mixed while revenues have been rising, which has produced conflicting feelings among investors. Relative to its peers and sector, Boeing has been a year-to-date performance leader. Look for Boeing to continue to OUTPERFORM.

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