NEW DIRECTIONAL CALL PLAYS
E.I.du Pont de Nemours and Company - DD - close: 78.77 change: +0.20
Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.9 million
Entry on March -- at $---.--
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
Not many companies have been around for more than 200 years. DD is part of the basic materials sector. They have grown into a giant conglomerate with about $35 billion in annual sales. DD makes products and materials for multiple industries including: agriculture, food & personal care, high-performance materials, industrial biotechnology, people & process safety.
According to the company, "DuPont (DD) has been bringing world-class science and engineering to the global marketplace in the form of innovative products, materials, and services since 1802. The company believes that by collaborating with customers, governments, NGOs, and thought leaders we can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment."
After seeing DD's latest earnings report you might wonder why the stock is nearing all-time highs. The company reported Q4 results in January. Earnings were in-line with estimates at $0.71 a share. Revenues dropped -4.8% to $7.38 billion, which was significantly below Wall Street's expectation of $7.79 billion.
DD reported sales declines in every business segment and in every geographical region of the world it does business. Nearly 65% of DD's revenues are outside North America so the big rally in the U.S. dollar was a major headwind for the company.
DD's guidance was bearish. They lowered their 2015 guidance into the $4.00-4.20 range compared to analysts' estimates at $4.47.
So why are investors so bullish on the stock? Is it because DD is forecasting a minimum savings of $1.3 billion in cost-reduction strategies by 2017? Is it because DD is so shareholder friendly by spending $3.7 billion in 2014 on stock buybacks and dividends? It's possible.
The better bet is that DD's stock has continued to show strength because of a growing fight between management and a major activist shareholder. Trian Fund Management, run by Nelson Peltz, owns a 2.7% stake in DD (that's about $2 billion). Trian started investing in DD a couple of years ago. He has been very critical of management. Peltz claims that DD suffers from $4 billion in excess costs.
Peltz has been trying to get four seats on DD's board but DD has been fighting back. Peltz has been suggesting DD split up the company for months to unlock shareholder value. DD argues that Peltz's plan to split up the company misrepresents the facts and is high risk.
Currently DD is spinning off its lower-margin performance chemical business (The Chemours Co.) but according to Peltz the way DD is performing the spin off is outdated and designed to prevent any potential takeover.
Wall Street analysts seem to be mostly bullish on the stock. Shares of DD have recently seen price target upgrades in the $87-88 range. Technically shares have been showing relative strength. Traders have been buying the dips pretty quickly. Today DD outperformed the broader market and closed at multi-year highs.
Tonight we are suggesting a trigger to buy calls at $79.05.
Trigger @ $79.05
- Suggested Positions -
Buy the JUL $80 CALL (DD150717C80) current ask $2.52
Option Format: symbol-year-month-day-call-strike