by Ian Harvey
October 24, 2018
OUT WHILST THE GOING IS GOOD!
GREED CAN BE THE UNDOING OF A GOOD PROFIT!
3M Co (NYSE:MMM)
3M Co reported earnings yesterday, before the market opened, but bombed out badly when it reported disappointing results for third-quarter 2018 with both earnings and revenues missing estimates. A put option trade was recommended to “Earnings Predictions Members" on Monday, October 22, 2018, based on several issues – declining share price this year, rising costs and expenses, stiff competition and downgrades.
This report has caused 3M Co to decline further, 8.5% in early trading, but overall ended the day at $192.55 USD , or -4.38%. However, members of Stock Options Made Easy had the chance to make a potential profit of 186%.
PATIENCE PAYS OFF!
YOU NEED TO BE IN TO PROFIT!
The Details Presented Previously……..
Industrial goods manufacturer, 3M Co (NYSE:MMM) is set to release its earnings data before the market opens. Wall Street expects 3M to post adjusted EPS of $2.70 in the third quarter, an increase of ~15.9% compared to the third quarter of 2017. In the third quarter of 2017, 3M reported adjusted EPS of $2.33.
As well, Wall Street expects 3M to report revenue of $8.39 billion in the quarter, an increase of 2.7% YoY (year-over-year). In Q3 2017, 3M reported revenue of ~$8.17 billion.
The company delivered better-than-expected results in two of the last four quarters, while reported in-line results in two. Average earnings surprise was a positive 2.22%.
Year to date, 3M's shares declined 14.9%, worse than 8.7% fall recorded by the industry it belongs to.
Rising costs and expenses might be detrimental to 3M's financial performance. An increase in retirement benefit costs, raw material cost inflation and interest expenses were primarily responsible for the increase in cost of sales in the first two quarters of 2018. 3M believes that inflation in raw material costs might remain a concern in the quarters ahead.
Furthermore, stiff competition from local players in the countries where 3M operates, especially India, Brazil and Indonesia, puts immense pressure on it. As well, unfavorable movements in foreign currencies will be harmful.
3M was downgraded by Zacks Investment Research from a “hold” rating to a “sell” rating in a note issued to investors on Tuesday, September 25th.
According to Zacks, “Over the past six months, 3M’s shares have underperformed and look overvalued compared to the industry. Escalating costs have become a major cause of concern for the company. High retirement benefit cost, inflation in the prices of major inputs and escalating interest expenses might continue to augment the company’s aggregate costs, in turn, hurting its near-term profitability. Notably, 3M has lowered its earnings guidance for 2018. Also, analysts have revised the Zacks Consensus Estimate for 2018 earnings downward in the past month, which indicates bearish analyst sentiment. Other headwinds like stiff competition from local players and supply contract issues remain causes of concern. Further, the company remains exposed to risks associated with adverse changes in foreign currency exchange rates, interest rates and commodity prices.”
Option trade to consider: Buy the MMM NOV 16 2018 195.000 PUT at approximately $4.00.
The Result So Far………
Revenue was down 0.2% to $8.15 billion, and net income was up 8% to $1.54 billion, or $2.64 per share. On an adjusted basis, which pulls out one-time items, earnings were $2.48 per share.
Analysts were expecting $8.41 billion in revenue and $2.70 per share in earnings, so results fell well short of expectations.
On a geographical basis, sales in the United States increased 1.3% year over year, while that generated in the Asia-Pacific grew 1.6%. Europe, Middle East and Africa's sales declined 3.9% and that from Latin America/Canada decreased 5.5%.
The bigger news may have been management's updated earnings guidance for the year of $9.90 to $10.00, down from a previous range of $10.20 to $10.45 per share. Analysts were expecting $10.28 per share in earnings.
Organic sales growth guidance has been revised to about 3% from 3-4% projected earlier. Free cash flow conversion has been revised to 90-95% from 90-100% projected earlier. Effective tax rate is anticipated to be 20-21%.
So, for “Earnings Predictions” members, who managed to execute this trade recommended by Stock Options Made Easy; potential profits of 186% were at-hand.
Entering the option trade at a cost of $4.00 or less; and the price of the option reached $11.45 yesterday; a profit of 186% was made in just over a day. Therefore, one options contract would provide a profit of $745.00.
A NICE START TO THE WEEK!
The weak results follow an outstanding second quarter that may have given investors a little too much hope for growth. Management had disclosed that an ERP rollout could front-weight 2018's sales, and price increases implemented in the past year would only drive organic growth for so long. That said, the slowdown was worse than most analysts expected, and negative sales in a strong economy can't be a good sign. That's why shares of 3M were down big yesterday.
As you would have by now realized, some of our trades are based on earnings predictions. This is not to say all trades recommended to members follow this pattern, but it is obvious that it applies in this case; and during earnings season this strategy of predicting earnings has been very profitable.
Sometimes it is our approach to predict whether a company will beat or miss estimates, whether the stock will appreciate or depreciate as a result and what strategies investors and traders can use – such as found with the “Earnings Predictions Program”. This type of prediction is based on thorough investigation and fundamentally based research, and the results have been very exceptional.
Strategies to Consider……
It is also worth considering, when options trading earnings reports – “Do we exit on already existing profits or leave the companies to report their earnings and hope for bigger profit?” .....READ MORE.....
"Trading Capital Management" is a key component of your trading strategy. The strategy, on which we base our trades to achieve maximum profit, and to minimize loss, is contingent on using an equal amount of money for each trade.……continue reading this article……
Our proven track record says it all!!
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