Option Trade 
United Parcel Service, Inc. (NYSE:UPS) Calls 
Thursday, 28th July, 2016

** OPTION TRADE: Buy the UPS OCT 21 2016 110.000 call at approximately $2.10. Place a pre-determined sell at $4.50.

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

by Ian Harvey

July 28, 2016

United Parcel Service, Inc. (NYSE: UPS), a package delivery company, will be announcing its earnings results on Friday, July 29th, before the bell. United Parcel Service has set its FY16 guidance at $5.70-5.90 EPS.

Wall Street is expecting earnings of $1.43 per share on revenue of $14.65 billion. Last year, the company reported earnings of $1.35 per share on revenue of $14.1 billion.

UPS is expected to beat Wall Street's earnings estimates as a result of continued U.S. domestic package growth. The company has reported surprise earnings beats for the last four quarters, with a 6.1% average beat.

In the first quarter of 2016, United Parcel Service reported a positive earnings surprise of 4.10%.

The company reported $1.27 earnings per share (EPS) for the quarter, topping analysts’ consensus estimates of $1.22 by $0.05. The firm had revenue of $14.40 billion for the quarter, compared to analyst estimates of $14.57 billion. During the same quarter in the previous year, the company earned $1.12 earnings per share. The company’s quarterly revenue was up 3.2% on a year-over-year basis.

Results were buoyed by a rise in ecommerce packages in the company's U.S. Domestic Package unit. The company has an impressive track record with respect to earnings, having posted higher-than-expected earnings in each of the past four quarters, with an average beat of 6.01%.

The stock has a 50 day moving average price of $107.56 and a 200-day moving average price of $102.16. The firm has a market cap of $96.03 billion and a PE ratio of 19.77. United Parcel Service Inc. has a 52-week low of $87.30 and a 52-week high of $111.83.

Why UPS?

It is expected that the company's U.S. Domestic Package unit will continue to drive growth in the second quarter. The Supply Chain and Freight segment is expected to perform well in the quarter on the back of the Coyote Logistics acquisition, which was completed in the third quarter of 2015. The company expects its 2016 adjusted earnings per share in the band of $5.70 to $5.90. The range reflects 5% to 9% growth over the comparable 2015 figure of $5.43.

The company's effort to reward shareholders consistently through buybacks and dividends is impressive. In the first quarter of 2016, United Parcel Service shelled out approximately $670 in dividend payments to its shareholders, reflecting a 6.8% improvement over the year-ago payout. The company bought back 6.8 million shares for approximately $680 million in the first quarter.

However, revenues at the company’s international package unit are expected to suffer due to adverse foreign currency movements in the second quarter. Lower fuel surcharges are also expected to hurt results.

Analysts Opinions are Positive

TheStreet Ratings have rated United Parcel Service Inc as a Buy with a ratings score of A.

This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, notable return on equity and increase in net income. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

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

• Sanford C. Bernstein reissued an “outperform” rating on shares of United Parcel Service in a report on Thursday, May 26th.

• Zacks Investment Research raised shares of United Parcel Service from a “hold” rating to a “buy” rating and set a $118.00 price target on the stock in a report on Tuesday, April 26th.

• Citigroup Inc. restated a “hold” rating on shares of United Parcel Service in a research note on Thursday, June 30th.

• Finally, Oppenheimer Holdings Inc. restated an “outperform” rating and issued a $112.00 price objective (up from $109.00) on shares of United Parcel Service in a research note on Monday, May 2nd.

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 UPS OCT 21 2016 110.000 call at approximately $2.10. Place a pre-determined sell at $4.50.

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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