Will US Airways See a Rise from a Potential Deal?

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 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.

US Airways, AMR Corp., and the Justice Department all said they would be open to reaching a settlement in which the Depart of Justice (DoJ) would stop its attempts to block a planned merger between the two airlines. According to a document filed by the parties and seen by Street Insider, the DoJ said it would be open to allowing the merger to go through if the airlines make antitrust concessions. The airlines, especially the bankrupt AMR Corp.-owned American, want the trial to start in November, but the DoJ has requested a March start date.

T = Technicals on the Stock Chart Are Mixed

US Airways stock has struggled year-to-date. The stock is currently trading near the lower-end of its yearly trading range. 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 key averages which signal 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

44.91%

50%

47%

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

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bearish 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-9.09%

-7.14%

63.41%

202.40%

Revenue Growth (Y-O-Y)

2.96%

3.45%

3.90%

2.82%

Earnings Reaction

2.49%

5.02%

1.48%

2.31%

US Airways has seen mixed earnings and rising 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

18.07%

24.41%

64.87%

22.33%

19.86%

US Airways has been a poor relative performer, year-to-date.

Conclusion

US Airways is an airline that operates passenger and freight planes. The company, AMR Corp., and the Department of Justice are currently attempting to reach a settlement regarding the US Airways and AMR Corp. merger. The stock has struggled this year and is currently trading near the lower-end of its yearly range. Over the last four quarters, earnings have been mixed while revenues have been rising which have pleased investors in the company. Relative to its peers and sector, US Airways has been a weak year-to-date performer. WAIT AND SEE what US Airways does this coming quarter.

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