Can Siemens Break Higher?

With shares of Siemens (NYSE:SI) trading around $130, is SI 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

Siemens is an integrated technology company with activities in the fields of industry, energy, and healthcare. Siemens operates in six segments: industry, energy, health care, equity investments, Siemens IT solutions and services, and Siemens financial services. The company has equity investments in telecommunications infrastructure and household appliance companies as well as in a company that provides open communications, network, and security solutions.

Siemens is in advanced negotiations to divest its water technologies business to the private equity group AEA Investors for roughly $800 million. AEA won over the private equity investor American Industrial Partners in the last round of the bidding, according to one of the sources. Siemens, which is Germany’s most valuable company by market capitalization, manufactures products ranging from trains to hearing aids. The company reported last November its plan to sell off the water technologies unit.

T = Technicals on the Stock Chart Are Strong

Siemens stock has struggled to make significant progress in recent years. However, the stock is currently breaking higher, trading near highs for the year. 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, Siemens is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

SI

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Siemens Options

19.55%

16%

14%

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

Put IV Skew

Call IV Skew

December Options

Flat

Average

January Options

Flat

Average

As of today, there is an 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 small amount of call and put option contracts and are leaning neutral to bullish 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 Siemens’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Siemens look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-22.84%

11.36%

-7.03%

-0.79%

Revenue Growth (Y-O-Y)

2.59%

-10.15%

3.83%

2.24%

Earnings Reaction

1.13%

0.44%

-1.08%

1.35%

Siemens has seen decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been conflicted with Siemens’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Siemens stock done relative to its peers, General Electric (NYSE:GE), ABB (NYSE:ABB), Phillips (NYSE:PHG), and sector?

Siemens

General Electric

ABB

Phillips

Sector

Year-to-Date Return

19.06%

28.66%

20.88%

33.12%

26.43%

Siemens has been a weak relative performer, year-to-date.

Conclusion

Siemens provides a range of valuable technology products and services to a number of industries around the world. The company is in advanced negotiations to divest its water technologies business to the private equity group AEA Investors for roughly $800 million. The stock has struggled in recent years but is now trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been rising, which has produced conflicting feelings among investors in the company. Relative to its peers and sector, Siemens has been a weak year-to-date performer. WAIT AND SEE what Siemens does this quarter.

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.

More from The Cheat Sheet