Option Trade
 Archer Daniels Midland Company Puts
Monday, July 31, 2017

** OPTION TRADE: Buy the ADM SEPT 15 2017 40.000 PUT at approximately $0.70. Place a pre-determined sell at $1.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.28.

Also 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 System

by Ian Harvey   

Food processing behemoth Archer Daniels Midland Company (NYSE:ADM), part of the Consumer Staples sector, is slated to release second-quarter 2017 results on Tuesday August 01.

The current Consensus Estimate for the quarter under review is pegged at 54 cents, reflecting year-over-year increase of about 32%.

However, it should be noted that the earnings estimate has declined by 4 cents over the last seven days. Analysts expect revenues of $15.8 billion, up a little over 1% from the year-ago quarter.

The company delivered a negative earnings surprise in the last reported quarter and has underperformed the Consensus Estimate in three out of the past four trailing quarters.

Over the trailing year, the stock is underperforming the S&P 500 by 18.28, and it’s gotten there by action that has been more volatile on a day-to-day basis than most other stocks on the exchange. In terms of the mechanics underlying that movement, traders will want to note that the stock is trading on a float of 1.74% with $555.45 Million sitting short, betting on future declines. That suggests something of the likelihood of a short squeeze in shares of ADM.

Archer-Daniels-Midland Company has a market capitalization of $23.75 billion, a PE ratio of 17.69 and a beta of 1.10. The company’s 50 day moving average is $41.50 and its 200 day moving average is $43.46. Archer-Daniels-Midland Company has a 52 week low of $40.22 and a 52 week high of $47.88.

Influencing Factors to Consider

Archer Daniels has tumbled 9.3% so far this year, as against the sector's growth of 10%. This is largely accountable to the company's dismal sales surprise history. Evidently, Archer Daniels has been missing sales estimates for over three years now. In fact, the company's bottom line has not been impressive too, as the last reported quarter marked its second straight earnings miss. The murky performance can be mainly attributed to fluctuating commodity prices, oversupply in the industry and unfavorable margins.

Further, management expects the global landscape in the second half of 2017 to be competitive for the Agricultural Services segment.

Also, results at the Oilseeds segment are anticipated to be in a range of flat to down year over year. The company expects soybean crush margins to remain pressurized on account of excess supply and competition.

While export volumes in Brazil are expected to improve, margins are likely to be dented by sluggish commercialization.

ADM currently has $476 Million of cash on the books, which is offset by $1.25 Billion current liabilities. You can get a sense of how sustainable that is by a levered free cash flow of $955 Million over the past twelve months. Generally speaking, earnings are expected to grow in coming quarters.

Analysts and Hedge Funds Opinions

Zacks Investment Research downgraded shares of Archer-Daniels-Midland from a “hold” rating to a “sell” rating in a research report on Wednesday, July 12th.

Archer-Daniels-Midland logoArcher-Daniels-Midland Company’s stock had its “hold” rating reaffirmed by stock analysts at BMO Capital Markets in a research report issued on Tuesday, June 27th. They presently have a $41.00 target price on the stock.

Several other analysts have also recently commented on the company…..

Credit Suisse Group set a $45.00 price target on Archer-Daniels-Midland and gave the company a “hold” rating in a research report on Tuesday, July 18th.

Stifel Nicolaus cut their price objective on shares of Archer-Daniels-Midland from $46.00 to $45.00 and set a “hold” rating on the stock in a research report on Tuesday, April 4th.

Finally, Argus lowered Archer-Daniels-Midland from a “buy” rating to a “hold” rating in a research report on Thursday, June 1st.

Two research analysts have rated the stock with a sell rating, eight have given a hold rating, two have given a buy rating and one has given a strong buy rating to the company’s stock. The stock has a consensus rating of “Hold” and a consensus price target of $42.00.

Several institutional investors have recently made changes to their positions in the stock…..

PGGM Investments lowered its position in shares of Archer-Daniels-Midland Company by 1.1% during the second quarter. The firm owned 372,903 shares of the company’s stock after selling 4,280 shares during the period. PGGM Investments owned 0.07% of Archer-Daniels-Midland worth $15,431,000 at the end of the most recent quarter.

Huntington National Bank cut its stake in shares of Archer-Daniels-Midland Company by 2.8% during the second quarter. The firm owned 59,466 shares of the company’s stock after selling 1,704 shares during the period. Huntington National Bank’s holdings in Archer-Daniels-Midland were worth $2,461,000 as of its most recent SEC filing.

Allianz Asset Management Ag decreased Archer Daniels Midland Co stake by 91.81%. Allianz Asset Management Ag sold 38.66 million shares as Archer Daniels Midland Co (ADM)’s stock declined 7.14%. The Allianz Asset Management Ag holds 3.45M shares with $157.43M value, down from 42.11M last quarter.

Harvey’s Options Volatility Indicator


The aforementioned obstacles are making investors anxious about Archer Daniels' upcoming results.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the ADM SEPT 15 2017 40.000 PUT at approximately $0.70. Place a pre-determined sell at $1.40.

Note: No protective stop losses added -- but if you wish to do so make it $0.28.

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