NEW DIRECTIONAL PUT PLAYS
Precision Castparts Corp. - PCP - close: 200.10 change: -2.52
Stop Loss: 205.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on January -- at $---.--
Listed on January 29, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
PCP is part of the industrial goods sector. They fabricate metal products for multiple industries. According to the company, "Precision Castparts Corp. is a worldwide, diversified manufacturer of complex metal components and products. It serves the aerospace, power, and general industrial markets. PCC is a market leader in manufacturing large, complex structural investment castings, airfoil castings, forged components, aerostructures and highly engineered, critical fasteners for aerospace applications. In addition, the Company is a leading producer of airfoil castings for the industrial gas turbine market. PCC manufactures extruded seamless pipe, fittings, forgings, and clad products for power generation and oil & gas applications; commercial and military airframe aerostructures; and metal alloys and other materials to the casting, forging, and other industries."
The stock has had a hard time since it produced a big bearish double top in 2014 (see weekly chart below). Earnings have struggled as well. Back in July 2014 the company reported earnings that missed estimates on both the top and bottom line. In October they miss estimates again. Then on January 16, 2015 the company issued an earnings warning.
Wall Street was expected PCP's Q3 earnings to be $3.41 on revenues of $2.57 billion. PCP warned that earnings would be closer to the $3.05-3.10 range and revenues below $2.47 billion. The stock crashed. Shares gapped down on this news to open at $186.70 (a -$33.00 drop). PCP immediately bounce but the oversold bounce failed near $210 and below its 10-dma. It's been sinking the last several days.
PCP did report its Q3 earnings on January 22nd. They managed to beat Wall Street's newly lowered expectations with earnings of $3.09 per share. Unfortunately PCP's management lowered guidance again and reduced their full year earnings forecast for 2015.
The stock been downgraded following its recent disappointments. Analysts are worried about the company's lack of earnings visibility and do not see any near term catalyst to drive the stock. The next event that might change investor sentiment could be PCP's 2016 guidance, which comes out in May this year.
PCP sells a lot of metal products to the oil and gas industry. Right now, with the price of oil at six-year lows, the company has reported a slowdown in customer orders from their energy-related clients. The bad news for PCP is that this trend will likely continue. Just this past week we heard some big name oil companies reducing their capex plans for 2015. Reduced spending in the oil and gas industry could be a constant theme this year as the sector adjusts to low crude oil prices.
The bearish performance in shares of PCP have generated a sell signal on the point & figure chart with a $132 target. Today PCP is hovering just above round-number support at the $200.00 mark. Tonight I am suggesting a trigger to buy puts at $199.50.
Trigger @ $199.50
- Suggested Positions -
Buy the MAR $190 PUT (PCP150320P190) current ask $3.50
Option Format: symbol-year-month-day-call-strike