Where Will Boeing Go Next?

With shares of Boeing (NYSE:BA) trading around $129, 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.

The Boeing Company reported fourth-quarter revenue of $23.8 billion and core earnings per share (non-GAAP) that increased 29 percent to $1.88, driven by strong performance across the company’s businesses and higher deliveries. Fourth-quarter core operating earnings (non-GAAP) of $1.8 billion includes a $406 million non-cash charge to settle A-12 litigation dating back to 1991, retiring a longstanding risk to the company. Excluding the A-12 charge, fourth-quarter 2013 core operating earnings increased 22 percent to $2.2 billion and core operating margin increased to 9.4 percent. Core and GAAP earnings per share includes a charge of $0.34 per share related to A-12 partially offset by a benefit of $0.28 per share for a tax regulation change. “Strong fourth-quarter results underscored an outstanding full year of core operating performance that drove record revenue and earnings and increased returns to shareholders,” said Boeing Chair and Chief Executive Officer Jim McNerney.

T = Technicals on the Stock Chart Are Mixed

Boeing stock has been exploding to the upside over the last couple of quarters. However, the stock is currently pulling back and may need time to consolidate. 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 between its rising key averages which signal neutral 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

26.81%

83%

80%

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

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

28.77%

11.85%

11.02%

18.03%

Revenue Growth (Y-O-Y)

6.65%

10.61%

9.05%

-2.53%

Earnings Reaction

-4.91%*

5.33%

-0.77%

3.00%

Boeing has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Boeing’s recent earnings announcements.

* As of this writing

P = Weak 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

-4.47%

-0.76%

-0.26%

-1.87%

-2.84%

Boeing has been a poor relative performer, 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 reported fourth-quarter earnings that left investors pleased. The stock has been surging higher but is currently pulling back. Over the last four quarters, earnings and revenue figures have increased. Relative to its peers and sector, Boeing has been a poor year-to-date performer. Look for Boeing to continue to OUTPERFORM.

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