by Ian Harvey
IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.
Friday, January 15, 2016
Option Trade – Noble Corporation Ordinary Shares (UK) (NYSE:NE) Puts
**OPTION TRADE: Buy the NE Feb 2016 8.000 put (NE160219P00008000) at approximately $0.70. Sell price is left to your own judgment.
Noble Corporation Ordinary Shares (UK) (NYSE: NE), a leading global offshore drilling contractor, is expected to report Q4 earnings in early February, and is at present being subject to a large volume of options trading – mainly put options – being a fairly sound indicator that all is not well.
Recent negative factors affecting NE’s growth include marginally lower average rig utilization and lower contract drilling service revenue due to the retirement of two semisubmersible rigs.
In recent quarters, Noble has retired two rigs based on prevailing weak energy market conditions. In October 2015, NE decided to cut its capex by 60%, as its management expressed concerns about its liquidity. Despite Noble’s recent efforts to slash debt, its net debt-to-EBITDA ratio is quite high.
Noble’s backlog was $8.1 billion by the end of fiscal 3Q15, 20% below its level at the start of fiscal 2015.
Noble’s one-year returns (-39% return net of dividends) have been worse than the Market Vectors Oil Services ETF’s (OIH) returns of -27%. Its stock has also underperformed crude oil prices, which fell 31% in the past year.
Wednesday, January 13, 2016
Option Trade – JPMorgan Chase & Co. (NYSE:JPM) Puts
**OPTION TRADE: Buy the JPM Feb 2016 57.500 put (JPM160219P00057500) at approximately $1.20. Sell price is left to your own judgment.
JPMorgan Chase & Co. (NYSE: JPM), is set to report its fourth-quarter results on Thursday, before the market opens. Consensus estimates call for EPS of $1.30 and $23.10 billion in revenue – with fourth-quarter revenue being projected to come in 2.4 percent below last year’s $23.6 billion. Third-quarter earnings per share were $1.68.
JPMorgan Chase & Co. disappointed analysts' expectations in October, as all of its major divisions reported earnings down year over year. The trading desk took a particularly large hit, with revenue from fixed income, currencies and commodities, also known as FICC, dropping 23 percent.
Analysts noted that around half of JPMorgan’s revenue stems from FICC trading.
On Friday, the head government bond trader left the bank, along with a deputy. JPMorgan shares fell nearly 11 percent after the tumultuous first week of trading in 2016 after facing the largest decline of any of the big six U.S. banks – and this will likely continue after the report.
Tuesday, January 12, 2016
Option Trade – Citigroup Inc (NYSE:C) Calls
**OPTION TRADE: Buy the C Feb 2016 50.000 call (C160219C00050000)at approximately $0.80. Sell price is left to your own judgment.
Citigroup Inc (NYSE: C), is expected to report its fourth-quarter results on Friday. Consensus analyst estimates call for $1.14 in EPS and revenue of $17.90 billion.
Citigroup Inc. looks to step up in the equity market and related derivatives. The bank has performed well in the equity market as its competitors’ revenues have fallen. According to a recent article by The Wall Street Journal, Citigroup is ranked ninth among banks in terms of revenue from equity trading, generated in the first three quarters of the last year. Citigroup has been a smaller player in equity market compared to Morgan Stanley and Goldman Sachs, but it plans to move up in the table, sourced by UBS.
The stock is very cheap, trading at just 8.24 times estimated 2016 earnings, and it is the nation’s fourth-largest bank by assets. Merrill Lynch sees the dividend growing from the current 0.4% and notes that Citi is the only U.S. universal bank trading below book value.
Deutsche Bank reissued their hold rating on shares of Citigroup Inc. in a report issued last Wednesday morning. They currently have a $57.00 price objective on the financial services provider’s stock.
Also, Citigroup Inc. was upgraded by Vetr from a “buy” rating to a “strong-buy” rating in a research note issued to investors last Thursday. The brokerage currently has a $54.77 target price on the financial services provider’s stock. Vetr‘s price objective suggests a potential upside of 18.73% from the stock’s previous close.
The consensus price target is $63.98. The 52-week trading range is $46.60 to $60.95.
Monday, January 11, 2016
CSX Corporation (NASDAQ:CSX) Calls
**OPTION TRADE: Buy the CSX Feb 2016 25.000 call (CSX160219C00025000) at approximately $0.45. Sell price is left to your own judgment.
CSX Corporation (NASDAQ: CSX), a transportation supplier, will report Quarter 4 earnings after trade closes tomorrow. According to Wall Street, CSX Corporation is expected to report earnings per share for the current fiscal quarter of $0.46. The company last reported earnings for the period ending on 2015-09-30 of $0.52.
In terms of market presence, CSX Corporation – with market capitalization $24.9 billion – is a clear leader in the U.S. railroad space.
Coal, which forms the key revenue driver for the railroad business, happened to be the major headwind in 2015. However, there is some hope for railroad operators as the U.S. Energy Information Administration's (EIA) projects a 0.5% increase in coal consumption in the electric power unit in 2016 from the 2015 level.
Moreover, as per EIA’s latest Short-Term Energy Outlook, liquid fuel usage may go up by 0.8% to 19.6 million barrels per day (b/d) in 2016 from 19.4 million b/d in 2015. Such a bullish outlook will drive crude by oil revenues for the country’s railway industry, which will likely result in some damage control.
As coal may face challenges in 2016, CSX Corp. is hopeful that intermodal growth will bail them out. The company continues to step up highway-to-rail conversions to gain a significant share of the expected 9 million volumes in the east that are well-positioned for intermodal business.
CSX Corp. continues to maximize shareholders wealth through share repurchases and regular dividend payments -- bought nearly $546 million worth of shares in the last three quarters and paid dividends worth $512 million, the dividend payout ratio being 34.6%.
CSX Corp. exited the third quarter of 2015 with cash and cash equivalents of $966 million.
In looking at the consensus numbers, the sell-side research analysts covering the stock have an average target price of $31.25 for CSX Corporation with the most bullish estimate at $39.00. This number is the mean estimate from the 12 research brokerages that recently issued reports on the firm.
Buckingham Research analysts Jeffrey Kauffman and Ryan Mueller reiterated a Buy rating and $34 price target on shares of CSX Corporation last Wednesday.
The analysts trimmed earnings estimates on lower fourth-quarter coal volumes. However, they pointed out that catalyst visibility is clearer for 2016.
Buckingham looked into CSX's financials. They think cash flows will continue to expand starting in 2016, driving extra returns to shareholders. Even in spite of the EPS adjustment, at current levels, CSX is one of the firm's top rail ideas.