“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, February 26, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade - EOG Resources Inc (NYSE:EOG) Calls

Tuesday, February 27, 2018

** OPTION TRADE: Buy the EOG APRIL 20 2018 115.000 CALL at approximately $2.00. Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.

EOG Resources Inc (NYSE:EOG), nicknamed the "Apple of oil" for its technical innovation in drilling and completion techniques, will report quarterly results late Tuesday. Analysts expect a profit of 52 cents per share, reversing a year-ago loss of a penny per share. Revenue is seen rising 26% to $3.03 billion.

As hard as Hurricane Harvey tried, it just couldn't hold back EOG Resources ' drilling machine in the third quarter. As a result, the shale giant entered the year's final quarter on pace to hit its bullish target to expand oil output 20% in 2017.

For the last quarter, this upstream energy player delivered a positive earnings surprise of 90%. In the last four quarters, the company’s average surprise was a positive 40.9%.

EOG expects its U.S. oil output to jump nearly 12% from just the third quarter, pushing its full-year rate up 20% versus 2016. If the company hits that mark and keeps costs at bay, it should have no problem meeting or potentially beating the consensus earnings estimate.

Also, it is expected that the company will report healthy Q4 numbers on the back of higher realized commodity prices and production.

Influencing Factors

Hurricane Harvey forced EOG Resources to hold back 15,000 barrels of oil per day (BPD) during the third quarter, which resulted in the oil giant only producing 327,900 BPD last quarter. However, with that headwind having vanished, EOG expects to unleash a gusher to end the year:

Metric                                                             Guidance or Expectations

Oil production                                                 362,000 to 370,000 BPD

Adjusted earnings per share                                      $0.52     

The Consensus Estimate for total Crude Oil and Condensate Volumes is pegged at 370 thousand barrels per day (MBbl/d) — within the company’s projected range of 362.5-370.7 MBbl/d, higher than last quarter’s 328 MBbl/d and year-ago quarter’s 312 MBbl/d. The Consensus Estimate for Average Crude Oil and Condensate Prices (Composite) is $54 per barrel, above last quarter’s $48.11 per barrel and the year-ago quarter’s $47.76 per barrel.  

The Consensus Estimate for total Natural Gas Liquids Volumes is 88 MBbl/d, higher than the year-ago 81 MBbl/d and preceding quarter’s 87 MBbl/d. The Consensus Estimate for Average Natural Gas Liquids Prices (Composite) is $21.77 per barrel, higher than the year-ago quarter’s $18.51 per barrel.  

The Consensus Estimate for Average Natural Gas Prices (Composite) is $2.23 per thousand cubic feet (Mcf), higher than the year-ago quarter’s $2.04 per Mcf.

As well, the Consensus Estimate for total production is 60 million barrels of oil equivalent (MMBoe), higher than last quarter’s 55 MMBoe and the year-ago quarter’s 53.7 MMBoe.

In August of 2016, EOG Resources provided investors with a glimpse of its growth potential thanks to the cost reductions and efficiency gains captured during the oil market downturn. At that time, the shale giant thought it could increase oil output at a 10% compound annual growth rate through 2020 at $50 oil, with that rate accelerating to 20% at $60 oil. However, thanks to additional gains and a needle-moving acquisition, EOG has since increased that outlook to 15% and 25% at $50 and $60 oil, respectively.

Analysts and Hedge Funds Opinions

EOG Resources has been assigned a $134.00 price target by stock analysts at Stifel Nicolaus in a note issued to investors on Sunday, February 11th. The brokerage presently has a “buy” rating on the energy exploration company’s stock. Stifel Nicolaus’ price target would suggest a potential upside of 22.39% from the stock’s previous close.

Also, Zacks Investment Research upgraded shares of EOG Resources from a hold rating to a strong-buy rating in a research report released on Friday, February 2nd. Zacks Investment Research currently has $134.00 target price on the energy exploration company’s stock.

According to Zacks, “EOG Resources holds premium acreages in the Permian, Bakken and Eagle Ford oil shale plays in the United States. We appreciate the firm’s plan to complete 505 wells in the resources in 2017, significantly higher than 443 recorded in 2016. Notably, during 2016, almost 50% of the wells drilled by the firm met the standard of premium wells. The company expected 80% and 90% of the wells to meet the standards in 2017 and 2018, respectively. In the promising U.S. shale plays, EOG Resources has identified 8,000 premium wells that can give access to almost 7.3 billion barrels of oil equivalent estimated potential reserves over a period of 10 years. The upstream energy player’s pricing chart history is also impressive. Over the past year, the stock has rallied 15.5%, outperforming the industry’s 13.3% decline.”

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

  • Citigroup raised shares of EOG Resources from a “neutral” rating to a “buy” rating and set a $125.00 price objective on the stock in a research note on Wednesday, January 3rd.
  • Credit Suisse Group set a $126.00 price target on EOG Resources and gave the stock a hold rating in a research note on Tuesday, January 23rd. They noted that the move was a valuation call.
  • BMO Capital Markets reissued a buy rating and issued a $120.00 target price on shares of EOG Resources in a research note on Thursday, January 11th.
  • Finally, Argus raised their price objective on shares of EOG Resources to $133.00 and gave the company a “buy” rating in a research note on Monday, January 8th.

As of February 21, 2018, Reuters reported 34 analysts with recommendations for EOG Resources (EOG) stock. Of those, 29.4% have “strong buy” recommendations, and 26.5% have “buy” recommendations. The remaining 44.1% have “hold” recommendations. There are no “sell” or “strong sell” recommendation for the stock.

The median target price for EOG Resources stock is $126, which is ~19% higher than its February 21, 2018, closing price of $105.81. In the last three months, the stock’s median target price has increased from $110 to $126.

Harvey’s Options Volatility Indicator


Unless EOG Resources ran into an unexpected drilling problem, the oil giant should report another good quarter. Further, given its low-cost operations, the company will likely unveil a balanced plan for 2018 that grows production and returns more cash to investors. Those catalysts could provide EOG Resources with the fuel needed to deliver market-beating performance in the coming year if oil prices cooperate.

EOG Resources has a 52 week low of $81.99 and a 52 week high of $119.00. The stock has a market cap of $63,310.00, a P/E ratio of 10,949.00, a price-to-earnings-growth ratio of 3.36 and a beta of 1.01. The company has a quick ratio of 1.11, a current ratio of 1.27 and a debt-to-equity ratio of 0.46.

Option Trade - salesforce.com, inc. (NYSE:CRM) Calls

Monday, February 26, 2018

** OPTION TRADE: Buy the CRM APRIL 20 2018 120.000 CALL at approximately $2.50. Place a pre-determined sell at $5.00.

Also include a protective stop loss of $1.00.

The San Francisco-based cloud software provider, salesforce.com, inc. (NYSE:CRM), will report earnings on Wednesday, February 28, 2018, after the market closes. Wall Street expects EPS of 34 cents per share on revenue of $2.81 billion, compared to the year-ago quarter of 28 cents per share on $2.29 billion in revenue.

The company's guidance was for earnings of $0.32 to $0.33 per share. Consensus estimates are for year-over-year earnings growth of 43.48% with revenue increasing by 22.49%.

Short interest has decreased by 19.4% since the company's last earnings release. As well, overall earnings estimates have been revised higher since the company's last earnings release.

The cloud computing giant is poised to report not only a top- and bottom-line beat, but also stellar guidance. “The company’s customer-centric and vertical-focused approach to enterprise penetration has been key to its success, which we expect to continue into the future,” noted Jefferies analyst John DiFucci, who recently upgraded Salesforce from Hold to Buy and boosted his price target from $97 to $132, suggesting a 17% premium from current levels.

DiFucci expects various positive drivers to allow Salesforce to post fourth-quarter earnings above analysts' expectations on Feb. 28.

Influencing Factors                                                            

The main factor that drives shares is none other than supply and demand – and over the past year, Salesforce.com stock has been in demand. Large institutional players have been in accumulation mode as the company continues to outperform expectations.

Being that Salesforce.com is the leader in the customer relationship software market, the growth aspects of the company haven't slowed – thus keeping institutions invested. In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation, and since October 2017, Salesforce.com stock has logged 14 of these rare signals. This indicates that demand for the shares is strong.

Notably, in 2018, MAP has flagged two potential institutional buy signals in Salesforce.com, which gives the expectation that this stock will continue to head higher.

The fundamental picture is sound….

  • Three-year sales growth rate: +27.31%
  • One-year EPS growth rate: +30%
  • Three-year EPS growth rate: +37.82%

Analysts and Hedge Funds Opinions

salesforce.com is likely to report strong fourth-quarter results with sustained demand trickling into its fiscal 2019, according to Morgan Stanley.

Analyst Keith Weiss reiterated an Overweight on Salesforce.com shares with a $134 price target, representing about 23-percent upside from current levels.

Data points highlighted by Salesforce.com's partners suggest the company is well-positioned to sustain 20-percent-plus billings growth in the fourth quarter and into 2019, Weiss said in a Thursday note. Salesforce may be operating in a more muted competitive environment relative to last year, the analyst said.

Marketing cloud is Salesforce's most notable positive, given the traction the segment gained due to recent product improvements and better integration with sales and service, Weiss said.

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

  • Cowen boosted their price target on shares of salesforce.com from $118.00 to $130.00 and gave the company an “outperform” rating in a research note on Thursday.
  • Royal Bank of Canada set a $120.00 target price on salesforce.com and gave the company a “buy” rating in a research report on Monday, January 22nd.
  • Barclays reissued an “overweight” rating and issued a $127.00 target price (up previously from $117.00) on shares of salesforce.com in a research report on Thursday, January 18th.
  • Finally, Credit Suisse Group reissued an “outperform” rating and issued a $130.00 price target (up from $120.00) on shares of salesforce.com in a research note on Tuesday, February 20th.

Shares of salesforce have earned an average recommendation of “Buy” from the fifty-two analysts that are covering the stock. Two research analysts have rated the stock with a sell recommendation, seven have assigned a hold recommendation and forty-three have assigned a buy recommendation to the company. The average twelve-month price objective among analysts that have issued ratings on the stock in the last year is $124.44.

Institutional investors that have recently made a change to their positions in the stock….

Mogy Joel R Investment Counsel Inc. grew its stake in salesforceby 1.0% during the 4th quarter. The fund owned 187,411 shares of the CRM provider’s stock after purchasing an additional 1,805 shares during the period. Mogy Joel R Investment Counsel Inc.’s holdings in salesforce.com were worth $19,159,000.

Harvey’s Options Volatility Indicator


Given the recent potential institutional accumulation signals and outperformance vs. the market, this stock is in bullish growth mode.

salesforce.com has a debt-to-equity ratio of 0.08, a current ratio of 0.82 and a quick ratio of 0.82. salesforce.com, inc. has a one year low of $80.50 and a one year high of $115.67. The company has a market cap of $83,035.61, a PE ratio of 359.25, a P/E/G ratio of 6.37 and a beta of 1.32.