Will Recent News Hurt Boeing’s Stock?

With shares of Boeing (NYSE:BA) trading around $137, 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 needs to improve the reliability of its 787 Dreamliner to satisfy customers such as Norwegian Air Shuttle after a series of malfunctions with the new aircraft, Mike Fleming, vice president of 787 Services and Support, said Friday. The composite-material aircraft’s dependability now is about 98 percent, which is short of Boeing’s best-selling wide- body model, the 777, Fleming said at a news conference in Oslo.

“We’re not satisfied with where the airplane is today, flying at a fleet average of 98 percent,” Fleming said. “It’s going to take us time, just as it did on the 777.” The Dreamliner experienced a series of malfunctions after its introduction in 2011, including a three-month grounding of the global fleet last year after batteries on some planes caught fire. Norwegian Air, which built its budget long-range ambitions around the Dreamliner, has been hit by the snags because it doesn’t have a big-enough fleet to absorb outages.

T = Technicals on the Stock Chart Are Strong

Boeing stock has been surging higher in recent quarters. However, the stock is currently pulling back and may need time to stabilize before heading higher. 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 signal neutral to bullish 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

28.78%

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

February Options

Flat

Average

March 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 very 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

11.85%

11.02%

18.03%

-30.91%

Revenue Growth (Y-O-Y)

10.61%

9.05%

-2.53%

14.05%

Earnings Reaction

5.33%

-0.77%

3.00%

1.27%

Boeing has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed 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), Northrop Grumman (NYSE:NOC), and sector?

Boeing

Lockheed Martin

Spirit Aerosystems

Northrop Grumman

Sector

Year-to-Date Return

0.49%

0.26%

-0.50%

-0.17%

1.02%

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 needs to improve the reliability of its 787 Dreamliner to satisfy customers. The stock has been surging higher but is currently pulling back. Over the last four quarters, earnings and revenue figures have increased. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Boeing has been a year-to-date performance leader. Look for Boeing to continue to OUTPERFORM.

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.

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