Option Trade
Dean Foods Co (NYSE:DF) Calls 
Friday, August 07, 2015

**OPTION TRADE: Buy the DF Sep 2015 18.000 call (DF150918C00018000) at approximately $0.65. Place a protective stop loss at $0.25, and a pre-determined sell at $1.30.

by Ian Harvey

August 07, 2015


Dean Foods Co (NYSE: DF), a food and beverage company, is scheduled to report second-quarter earnings on August 10 before the market opens. Analysts have forecast earnings of $0.26 per share, up from a loss of 14 cents during the same period last year. The stock is down 6.2% on the year.

Dean Foods is currently trending higher, and the stock remains in negative territory for the year. However, last quarter the company posted solid numbers, and the stock made a sharp move higher in reaction.

DF has had favorable earnings revision activity recently, which is a positive indicator. Whenever analysts boost their forecasts just before earnings are due is a bullish indicator because these revisions are made with the most recent information and are more accurate than estimates made weeks or months ahead of the report.

Dean Foods is the kingpin of the domestic dairy products space, with a broad portfolio of popular brands that are found in grocery stores around the country, including Dean's, Country Fresh, and TruMoo.

Technical Details

Dean Foods has a 52 week low of $12.62 and a 52 week high of $19.74. The stock’s 50-day moving average is $17.18 and its 200-day moving average is $17.26.

The company’s market cap is $1.65 billion.

Dean Foods Company weekly performance is 2.71% and EPS growth this year of-106.20%.

Dean Foods Company (DF)’S monthly performance ended at 9.19% and Dean Foods Company (DF) has an YTD performance of -5.41% in the Dairy Products industry.


Previous Earnings

Dean Foods last released its earnings data on Monday, May 11th. The company reported $0.24 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.17 by $0.07.

The company had revenue of $2.05 billion for the quarter, compared to the consensus estimate of $2.11 billion. During the same quarter in the prior year, the company posted ($0.05) earnings per share. The company’s quarterly revenue was down 12.4% on a year-over-year basis. Analysts expect that Dean Foods will post $0.92 EPS for the current fiscal year.

Future Earnings

Dean Foods has earnings coming up on Monday, and events are shaping up quite nicely for their report.

That is because DF is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends underneath the surface for DF in this report.

In fact, the Most Accurate Estimate for the current quarter is currently at 27 cents per share for DF, compared to a broader Consensus Estimate of 26 cents per share. This suggests that analysts have very recently bumped up their estimates for DF, giving the stock a good omen heading into earnings season.

Why Dean Food?

Dean Foods is a major distributor of fresh milk and other dairy products such as ice cream and cheese. It experiences slightly less volatility than other stocks, as it has a beta of 0.91. Dean Foods has some intriguing growth prospects. For example, the company's EPS is projected to grow by 771.43% this year. It also has current assets to current liabilities of 1.46.

The company has a large share of the dairy market in the US, and its sales to assets ratio of 3.39 is way ahead of the industry's 1.46.

Dean Foods has some value characteristics that make it an appealing buy as well. For example, the company trades at a price to sales of 0.18. A P/S less than 1 suggests that a stock is undervalued. The company also trades at a PE of 19.05.

Analysts Opinions

Analysts at JPMorgan Chase & Co. assumed coverage on shares of Dean Foods in a research report issued to clients and investors on Friday, 24th July. The firm set a “neutral” rating on the stock.

The company has also been the subject of a number of other research reports:-

• Analysts at Deutsche Bank upgraded shares of Dean Foods from a “hold” rating to a “buy” rating and raised their price target for the stock from $17.00 to $19.00 in a research note on Thursday, July 16th.

• Analysts at Zacks upgraded shares of Dean Foods from a “hold” rating to a “buy” rating and set a $19.00 price target on the stock in a research note on Wednesday, June 17th.

• Analysts at Morgan Stanley downgraded shares of Dean Foods from an “overweight” rating to an “equal weight” rating and raised their price target for the stock from $18.00 to $19.00 in a research note on Wednesday, June 3rd. They noted that the move was a valuation call.

• Finally, analysts at Stephens raised their price target on shares of Dean Foods from $15.00 to $18.00 and gave the company an “equal weight” rating in a research note on Tuesday, May 12th.

Sell-side firms covering the equity are estimating that the stock will reach $19.60 on a short-term basis. This is the mean estimate based on the 5 brokerage analysts surveyed. The most bullish analyst sees the stock reaching 22 while the most conservative target is set at $18.

By simplifying the analyst ratings into a 1 to 5 scale where 1 represents a Strong Buy and 5 a Strong Sell, Dean Foods Company has a rating of 2.25.

Harvey’s Options Volatility Indicator


Clearly, recent earnings estimate revisions suggest that good things are ahead for Dean Foods, and that a beat might be in the cards for the upcoming report.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the DF Sep 2015 18.000 call (DF150918C00018000) at approximately $0.65. Place a protective stop loss at $0.25, and a pre-determined sell at $1.30.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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