Will US Airways Climb Higher?

With shares of US Airways (NYSE:LCC) trading around $16, 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. Since air travel is quicker and is becoming 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 and American Airlines proposed an $11 billion merger that is coming under scrutiny because of concerns that certain cities will lose hubs or face cutbacks. The deal will also be investigated for its impact on consumers and competition. Companies and consumers worldwide look to travel at increasing rates since air travel is quicker and is becoming less expensive. As costs decrease and flights become more efficient, US Airways stands to see soaring profits as consumers and businesses look to air travel as a viable option.

T = Technicals on the Stock Chart are Mixed

US Airways stock has been flying higher over the last year or so and looks to still have room to go. However, the stock is now digesting gains from a recent run so it will need to form a base before it really gets going. 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 rising 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

49.89%

90%

88%

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

July Options

Flat

Average

August 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 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-7.14%

63.41%

202.40%

214.30%

Revenue Growth (Y-O-Y)

3.45%

3.90%

2.82%

7.17%

Earnings Reaction

5.02%

1.48%

2.31%

-3.79%

US Airways has seen mostly increasing earnings and 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

23.26%

25.68%

61.75%

36.57%

33.82%

In a strong sector, US Airways has been a weak relative performer, year-to-date.

Conclusion

US Airways is a passenger and freight airline during a time when consumers and companies are utilizing air travel more than ever. A recent proposed merger with American Airlines is coming under scrutiny which may stall a run in the stock. The stock is now currently digesting gains from a recent move higher so it may need to trade sideways a bit before it gets going. Over the last four quarters, earnings and revenue figures have been on the rise so investors in the company have been pleased. Relative to its strong peers and sector, US Airways has been a weak year-to-date performer. WAIT AND SEE what US Airways does this remaining 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