Very few companies are raising Q2 earnings guidance but this IT company raised over estimates. Western Digital is digesting its acquisition of SanDisk and it raised earnings and revenue guidance on Wednesday. Analysts like to see successful acquisitions.
On the flip side Methanex estimates are continuing to fall significantly. Support has been broken and Friday's bullish market had very little impact. Shorts were not covering on MEOH.
NEW DIRECTIONAL CALL PLAYS
WDC - Western Digital - Company Description
Western Digital Corporation, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs). The company also offers HDDs embedded into WD, HGST, and G-Technology branded external storage appliances with capacities ranging from 500 GB to 24 TB, as well as using various interfaces, such as USB 2.0, USB 3.0, FireWire, Thunderbolt, and Ethernet network connections.
WDC just completed the acquisition of flash memory maker SanDisk on May 12th and the combination will put it significantly ahead of Storage Technology (STX). WDC can include flash memory into its disk drive products to make them significantly faster as well as expand its offerings in the SSD market. By acquiring the SanDisk product line it provides a large amount of marketing breadth and created the premium data storage company.
Last Wednesday WDC raised adjusted earnings guidance to 72 cents, up from 65-70 cents. Analysts were expecting 68 cents. They raised revenue guidance from $3.35-$3.45 billion to $3.46 billion. Analysts were expecting $3.41 billion. This is the second guidance raise for this quarter. Back on May 26th they raised revenue guidance from $2.6-$2.7 billion to $3.35-$3.45 billion.
Earnings July 28th.
WDC has solid resistance at $51 but a breakout over that resistance could quickly sprint to $60. I am using the October options to avoid the rapid decline in August premium after July expiration next Friday. We will exit before earnings on the 28th. This is a short-term play to capture any continued market breakout.
Buy Oct $52.50 call, currently $3.05, initial stop loss $46.85.
NEW DIRECTIONAL PUT PLAYS
MEOH - Methanex Corp - Company Description
Methanex Corporation produces and supplies methanol in the Asia Pacific, North America, Europe, and South America. It also purchases methanol produced by others under methanol offtake contracts and on the spot market.
This is a very niche market and methanol prices have been declining. Like oil there is an abundance of methanol.
Earnings estimates are declining sharply. Full year estimates have fallen from a profit of 42 cents to a loss of 3 cents. That is a major drop. For the current quarter estimates have fallen from a loss of 19 cents to a loss of 27 cents.
Earnings July 27th.
Despite the rapidly falling estimates and stock price Raymond James upgraded it to strong buy on May 17th. Shares rallied on the upgrade from $29 to $35 and almost immediately rolled over again. Shares sank to a four-month low last week. On Friday when the market was exploding higher the stock only gained 38 cents. Shorts were not covering in MEOH.
I am picking the August $25 put because it is cheap and I am planning on holding over earnings unless we are really profitable ahead of the event. I believe the earnings will disappoint and we could see a sharp post earnings drop, but I would be wrong. The option is only $1 so the risk is minimal.
Buy August $25 put, currently $1.00, no initial stop loss.