“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, May 14, 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 – Deere & Company (NYSE:DE) Calls

Wednesday, May 16, 2018

** OPTION TRADE: Buy the DE JUNE 15 2018 150.000 CALL at approximately $3.50. Place a pre-determined sell at $7.00.

Also include a protective stop loss of $1.40.

Deere & Company (NYSE:DE), engaged in equipment operations, will report earnings on Friday, May 18, 2018, before the market opens. The consensus earnings estimate is $3.33 per share on revenue of $9.75 billion; but the Earnings Whisper number is for $3.40 per share. Consensus estimates are for year-over-year earnings growth of 33.73% with revenue increasing by 17.65%.

Deere stock is up nearly 29% over the last year, but its stock price has sunk 13.4% during the last 12 weeks. This fall has seen Deere’s valuation become more attractive. Deere is currently trading at 13.9X forward 12-months earnings estimates, which marks a substantial discount to its 18.8X median and the 19.6X that it was trading at in early March. 

Overall earnings estimates have been revised higher since the company's last earnings release.

Influencing Factors

Deere posted strong earnings in the first quarter and beat analysts’ estimates. However, the decline in the stock price was primarily due to trade tariff wars between China and the US. China imposed tariffs on US agricultural products. The tariffs would impact US farmers and could impact Deere’s sales in the region. Caterpillar (CAT), CNH Industrial (CNHI), and AGCO (AGCO) declined 2.9%, 10.3%, and 6.7%, respectively.

Deere has provided a stable outlook for fiscal 2018. The company expects revenue growth of 29% and adjusted earnings at $2.85 billion. Deere’s growth story appears to be intact with its continued acquisitions. All of these positive factors could help the stock to recover and increase.

The projected revenue growth for equipment operations is expected to be driven by acquisition revenue from Wirtgen Group. In the second quarter, the first full quarter revenue from Wirtgen will be seen after Deere completed the acquisition on December 1, 2017. Deere estimates that Wirtgen will contribute ~16% to Deere’s revenue growth in the second quarter. The Blue River Technology and Mazzotti acquisitions will likely add to Deere’s revenues. During the quarter, Deere acquired King Agro, a privately-held manufacturer of carbon fiber technology products, which could enhance Deere’s revenues.

The other factors that could impact Deere’s revenues are new product launches and the favorable foreign currency. The US Dollar Index, which measures the dollar’s movement against a basket of currencies, has strengthened in the past three months. However, Deere’s currency hedging strategy could still give Deere an edge to improve its revenues.

Analysts and Hedge Funds Opinions

Several equities analysts have recently commented on the company…..

  • Evercore rated Deere as “outperform” and has recommended a target price of $187.00, which implies a potential return of 27.4% based on its closing price of $146.75 as of May 14.
  • Bank of America Merrill rated Deere as a “buy” with a target price of $159, which implies a potential return of 8.3% over the closing price of $146.75 as of May 14.
  • Citigroup has provided Deere with a target price of $190, which implies a potential return of 29.5% over the closing price as of May 14.

Three research analysts have rated the stock with a sell rating, six have given a hold rating and sixteen have issued a buy rating to the stock. Analysts’ consensus indicates that Deere’s target price at $179.40 implies a return potential of 22.2%. Since February, analysts’ consensus on Deere has increased from $172.50 to the current consensus of $179.40, which indicates a bullish opinion among analysts.

Deere reported strong earnings growth in the first quarter and beating analysts’ estimates. Deere’s continued acquisitions reflect the company’s strategy towards future growth. This was illustrated by acquiring Wirtgen group and other small acquisitions. As a result, most of the analysts have recommended a “buy” for Deere.

Harvey’s Options Volatility Indicator

Summary

John Deere has a debt-to-equity ratio of 2.85, a current ratio of 1.98 and a quick ratio of 1.69. John Deere has a 52 week low of $111.12 and a 52 week high of $175.26. The company has a market cap of $44.46 billion, a price-to-earnings ratio of 21.27, a PEG ratio of 2.55 and a beta of 0.81.


Option Trade – Applied Materials, Inc. (NASDAQ:AMAT) Calls

Tuesday, May 15, 2018

** OPTION TRADE: Buy the AMAT JULY 20 2018 57.500 CALL at approximately $2.15 TO $2.20. Place a pre-determined sell at $4.30.

Also include a protective stop loss of $0.85.

Chip-gear maker Applied Materials, Inc. (NASDAQ:AMAT), headquartered in Santa Clara, manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide, being a top holdings, will report earnings on Thursday, May 17, 2018, after the market closes. The consensus earnings estimate is $1.13 per share on revenue of $4.45 billion; and the Earnings Whisper number is $1.16 per share.

Consensus estimates are for year-over-year earnings growth of 43.04% with revenue increasing by 25.49%.

In the last reported quarter, AMAT delivered a positive earnings surprise of 9.28%.

The company's surprise history has been pretty impressive. It beat estimates in each of the trailing four quarters, with an average positive earnings surprise of 4.76%.

On a 12-month basis, Applied Materials' shares have returned 23.7%.

The company has well-differentiated products and high market share, and is efficiently delivering key enabling technology to logic and foundry customers. Service is an important part of Applied's portfolio that grew significantly in the last reported quarter.

The Applied Global Services (AGS) segment increased 5.9% sequentially and 30.2% year over year. The segment is expected to perform well in the quarter to be reported, driven by improved device and yield performance. The Consensus Estimate for the second quarter for AGS is pegged at $890 million.

Overall earnings estimates have been revised higher since the company's last earnings release.

Influencing Factors

AMAT has gained considerable success in expanding beyond semiconductors, particularly in display. New display technologies such as OLED are opening new market opportunities for Applied Materials. The available market opportunity is now more than 10 times that of the traditional LCD.

In the last reported quarter, the Display segment was down 32.8% from fiscal fourth-quarter 2017 but up 7.8% from the year-ago level. The segment is expected to be driven by significant opportunities coming from investments in areas such as artificial intelligence, big data, cloud infrastructure, Internet of Things (IoT), virtual reality and smart vehicles. The Consensus Estimate for the to-be-reported quarter for the Display segment is pegged at $579 million.

Applied Materials declared that its board has initiated a share buyback program on Wednesday, February 14th that authorizes the company to buyback $6.00 billion in outstanding shares. This buyback authorization authorizes the manufacturing equipment provider to buy shares of its stock through open market purchases. Shares buyback programs are typically an indication that the company’s leadership believes its stock is undervalued.

From a technical standpoint, Applied Materials stock has experienced a strong rally since breaking out from its pivot point and 500-day moving average at around $52.00 earlier this month. The relative strength index (RSI) remains in neutral territory with a 58.46 reading, but the moving average convergence divergence (MACD) experienced a bullish crossover earlier this month and remains in a robust upswing moving into this week.

Analysts and Hedge Funds Opinions

Applied Materials Inc shares briefly rose more than 2% on Monday after Citi maintained its buy rating and raised its price target from $70 to $78, which represents a 40% premium to Friday's closing price. The move comes after Apple, Inc. CFO Luca Maestri suggested that NAND and DRAM memory prices would move lower going into 2019 as weaker demand helps alleviate chronic supply issues.

Citi analyst Atif Malik believes that weak NAND memory spending concerns are largely priced into the sector and suggested that the second half of the year could be a good time to buy equipment stocks ahead of first quarter shipments next year.

Also, B.Riley FBR analyst Craig Ellis maintained a Buy rating on Applied Materials yesterday and set a price target of $77. The company’s shares opened today at $55.26.

Ellis noted:

“Applied Materials (AMAT) reports F2Q18 5/17 AMC with a 4:30 PM ET CC. We project moderate print and guide upside to the Cap’s diversified revenue growth bellwether. Fundamentally, we believe AMAT’s 2H17 call for AI-led silicon consumption growth has gained fresh validation from robust NVDA and INTC beats, data-centric internet bellwether capital spending surges, and signs another big multi-year hardware and semi growth cycle is in early- innings. A long list of Cap results outperformance, less bad iPhone units, and stubbornly resilient but visibly moderating global smartphone unit growth from historically-accurate forecaster QCOM put TSMC’s 2Q miss in much less alarming context. Our checks showing China greenfield fab order acceleration rounds out our constructive view.”

Applied Materials has an analyst consensus of Strong Buy, with a price target consensus of $73.71.

Harvey’s Options Volatility Indicator

Summary

Applied Materials has a debt-to-equity ratio of 0.62, a quick ratio of 2.25 and a current ratio of 2.96. AMAT has a 52-week low of $40.79 and a 52-week high of $62.40. The stock has a market cap of $57.62 billion, a P/E ratio of 16.87, a P/E/G ratio of 0.94 and a beta of 1.65.






Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.







Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name