Will a Recent Deal Help US Airways Continue to Rise?

With shares of US Airways (NYSE:LCC) trading around $23, is LCC 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, and 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.

The stalled merger between US Airways and AMR Corp.’s (AAMRQ.PK) American Airlines will finally be going through, as the airlines on Tuesday reached a settlement with the U.S. Department of Justice, which had sued to block the merger. And according to a report from Bloomberg, it doesn’t look as if the airlines are giving up very much at all in the settlement; the two will move forward with their merger more or less as planned.

T = Technicals on the Stock Chart Are Strong

US Airways stock has been surging higher in the past several years. The stock is currently trading near highs for the year and looks ready 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, US Airways is trading above its rising key averages, which signals neutral to bullish 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

49.19%

53%

51%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts 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 Thursday, 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 significant 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-16.13%

-9.09%

-7.14%

63.41%

Revenue Growth (Y-O-Y)

9.11%

2.96%

3.45%

3.90%

Earnings Reaction

-2.5%

2.49%

5.02%

1.48%

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

P = Average 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), and United Continental (NYSE:UAL) — and sector?

US Airways

Southwest Airlines

Delta Air Lines

United Continental

Sector

Year-to-Date Return

74.96%

77.05%

134.6%

56.54%

70.51%

US Airways has been an average relative performer, year-to-date.

Conclusion

US Airways is an airline that operates passenger and freight planes. The stalled merger between US Airways and AMR Corp.’s American Airlines will finally be going through. The stock has exploded higher in 2013 and is currently trading near its yearly highs. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has produced optimistic investors. Relative to its peers and sector, US Airways has been an average year-to-date performer. Look for US Airways to OUTPERFORM.

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