Option Trade
Eaton Corporation (NYSE:ETN) Puts 
Friday, 29th July, 2016

** OPTION TRADE: Buy the ETN OCT 21 2016 62.500 put at approximately $2.20. Place a pre-determined sell at $4.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.90.

by Ian Harvey

July 29, 2016

Eaton Corporation (NYSE: ETN), a diversified power management company, will release second-quarter 2016 financial results before the market opens on Aug 2. Last quarter, this power management company reported a positive earnings surprise of 3.53%, but is not expected to do so this time round.

Eaton expects earnings per share for the second quarter to be in the range of $1 to $1.10 per share. Eaton expects its organic revenue to improve in excess of 5% sequentially, as the first quarter is historically its weakest in terms of revenue generation.

However, the weakness in the some of the company's end markets could have an adverse impact on its results on a year-over-year basis. Negative currency translation might also have some impact on second-quarter revenues. Eaton expects organic revenues to decline between 2% and 4%, reflecting continuing sluggish markets around the world.

Eaton Co., PLC has a 52-week low of $46.19 and a 52-week high of $64.71. The firm has a market cap of $29.08 billion and a price-to-earnings ratio of 15.40. The stock has a 50 day moving average of $61.29 and a 200 day moving average of $58.73.

Analysts Opinions

Eaton Corp. PLC was downgraded by research analysts at Bank of America Corp. from a “buy” rating to a “neutral” rating in a note issued to investors recently. They currently have a $65.00 price objective on the stock.

Also, Eaton Corp. PLC was downgraded by Zacks Investment Research from a “hold” rating to a “sell” rating in a research note issued on Monday.

According to Zacks, “Eaton Corporation is seeing a steady drop in bookings in some of its business segments. Since Eaton generates nearly 50% of its revenues from operations outside the U.S., lower-than-expected economic improvement in some of these countries could dampen demand for its products and have an adverse impact on its global revenue generation. These factors along with negative foreign currency exchange rates are expected to lower its 2016 organic revenues by 2% to 4% from 2015 levels. Eaton has plans to invest $400 million in its three-year restructuring program, spanning from 2015 to 2017, boosting its operating margin. Consistent R&D investment will help the company to create new products and provide better electrical solutions to its customers.”

Also, several equities research analysts have recently commented on the company.

• 7/14/2016 – Eaton Co., PLC was downgraded by analysts at Bank of America Corp. from a “buy” rating to a “neutral” rating. They now have a $65.00 price target on the stock. They noted that the move was a valuation call. They noted that the move was a valuation call.

• 7/9/2016 – Eaton Co., PLC had its “buy” rating reaffirmed by analysts at Credit Suisse Group AG.

Three analysts have rated the stock with a sell rating, seventeen have assigned a hold rating and five have given a buy rating to the company. The company presently has a consensus rating of “Hold” and a consensus price target of $61.06.

Harvey’s Options Volatility Indicator

Conclusion

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

** OPTION TRADE: Buy the ETN OCT 21 2016 62.500 put at approximately $2.20. Place a pre-determined sell at $4.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.90.

”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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