Option Trade 
Ford Motor Company (NYSE:F) Calls 
Wednesday, 27th July, 2016

** OPTION TRADE: Buy the F OCT 21 2016 14.000 call at approximately $0.50. Place a pre-determined sell at $1.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

by Ian Harvey

July 27, 2016

Ford Motor Company (NYSE: F), a global automotive and mobility company, will deliver its second-quarter earnings report before the market opens Thursday.

The No. 2 U.S. car maker is expected to post earnings of 60 cents a share, according to analysts, compared with 47 cents during the same time period a year ago. Revenue is expected to rise 3% to $36.3 billion compared with $35.1 billion a year ago.

Ford has stepped up production of its highly-profitable trucks and sport-utility vehicles, a move that is expected to power North American earnings in the second-quarter. Rising sales in Europe and China are also helping to offset red ink in South America.

Ford is witnessing strong sales volumes in all major markets. This will boost the automaker’s revenues. The company expects 2016 pre-tax profit, earnings per share, Automotive revenue and Automotive operating margin to be equal to or higher than 2015 levels.

Also, North America, Europe, Middle East & Africa, and the Asia Pacific segments are expected to be profitable this year. Results from Europe and the Asia Pacific are anticipated to witness a year-over-year improvement in 2016, while that from Middle East & Africa will likely be equal to or higher than 2015 levels. Better annual guidance raises expectations of improvement in the quarterly performance as well.

Ford stock is currently trending higher, and with a P/E of just 6.5, there is a lot of upside for the automaker if its quarterly numbers impress. The company has a mixed earnings record, but it has managed to post two consecutive better than expected reports, and a third will drive shares even higher.

The company’s main competitor, General Motors (GM), has already posted its quarterly numbers, easily topping estimates for both the top and bottom lines, and shares made a strong move higher on the results. With GM enjoying solid numbers, Ford is likely to also post decent results.

Wall Street appears to agree that Ford will post solid results, with the Street setting a whisper number for the quarter of $0.62, which is two pennies higher than the consensus. If Ford is able to hit the estimate, shares should make a charge higher.

F shares are trending higher, but remain down 2.6% on the year.

The firm has a 50-day moving average of $13.13 and a 200-day moving average of $12.93. The stock has a market cap of $54.98 billion and a PE ratio of 6.41. Ford Motor has a 1-year low of $10.44 and a 1-year high of $15.84.

Ford has had a great run since the Brexit low. At last week's peak, the stock was up over 16% from its June 27 low. This impressive rebound took out layers of overhead supply along the way. As last week began, Ford was beginning to put some distance on its 200-day moving average as well as the June peak. As the stock begins to back away from supply near the January/April highs, this zone marks a solid support area.

In the near term, Ford appears headed for a retest of the $13.50-to-$13.15 area. This key support zone includes the stock's June high near the upper band. At the lower band is the weekly high as well as the 50-day moving average. In the middle of this zone is the 200-day moving average. If Ford can regain its footing near this area ahead of earnings, better-than-expected results could spark a fresh rally leg.

Ford hit the gas on truck and SUV production this year in the U.S., boosting second-quarter output 14% from the same time period a year earlier.

Ford's sales in China are up 6% in the first half of the year but the second-quarter was rocky. Sales fell in April and May before rebounding in June. The performance contrasts with rising demand in the broader Chinese market amid new tax incentives aimed at stimulating demand for more fuel-efficient cars. Ford has placed big bets on China, recently spending $5 billion to build new plants and expand its lineup in the world's largest auto market.

Ford teased investors earlier this year with a pledge to expand into new transportation services, promising to roll out a more concrete plan this year. Chief Executive Mark Fields has also hyped the sector, which includes buses, cabs and passenger rail, as generating $5.4 trillion in revenue a year and describing it as a big opportunity for Ford.

Barclays PLC restated their equal weight rating on shares of Ford Motor Co. (NYSE:F) in a report published on Tuesday morning.

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

• Royal Bank Of Canada lifted their price objective on shares of Ford Motor from $14.00 to $15.00 and gave the stock a sector perform rating in a research note on Friday, April 29th.

• Vetr raised shares of Ford Motor from a hold rating to a buy rating and set a $14.64 target price for the company in a research note on Monday, May 2nd.

• JPMorgan Chase & Co. reissued a buy rating on shares of Ford Motor in a research note on Wednesday, June 1st.

• Rodman & Renshaw began coverage on shares of Ford Motor in a research note on Monday, July 18th. They set a buy rating for the company.

• Finally, Buckingham Research reissued a buy rating on shares of Ford Motor in a research note on Thursday, May 5th.

Four research analysts have rated the stock with a sell rating, five have given a hold rating, eleven have given a buy rating and one has issued a strong buy rating to the stock. Ford Motor currently has a consensus rating of Hold and a consensus price target of $15.42.

Harvey’s Options Volatility Indicator


Wall Street analysts were happily surprised when Ford trounced earnings estimates in the first quarter, more than doubling its year-earlier profit. Worries that a rise in low-profit rental-fleet sales would squeeze Ford's margins turned out to be unfounded: Strong sales of high-profit trucks and SUVs helped the company to an impressive overall 9.8% operating profit margin.

We should see Ford post a big improvement this time around on it’s year-ago 7.2% operating profit margin. With average transaction prices still strong, incentives at reasonable levels, and no new overseas drama cropping up, it's quite possible that Ford's margin will jump -- and that its result will come in a bit ahead of Wall Street's optimistic estimate.

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

** OPTION TRADE: Buy the F OCT 21 2016 14.000 call at approximately $0.50. Place a pre-determined sell at $1.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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