Dean Foods-DF Earnings Trade

by Chris Johnson and Jon Lewis | May 6, 2010 1:55 am


Dean Foods (DF[1]) is a food and beverage company, although it operates mainly in the dairy aisle with brands that include Land O’Lakes, Meadow Brook and Borden.

Earnings season has not been friendly to DF. The company is all over the map relative to earnings estimates. Take the past 10 quarters: five beats, four misses and one tie. That’s not a track record that breeds a lot of confidence. 

Analysts are looking for 28 cents per share for Q1, a 46% drop from a year ago. That’s a positive from an expectational view, right?

Well, it would be for some stocks. But not for DF.

In the past four quarters, the company has posted two beats, a miss and a tie. But the stock has plummeted after each report, plunging an average of 7.5% in just the one day following its earnings announcement. And it’s not like the stock ran up into earnings, causing a “sell the news” reaction.

Note in the chart below how each of the past three earnings drops was preceded by weakness in the shares, a situation that is once again playing out.

DF Stock Chart

Adding to the concern for this stock is sentiment that is curiously mixed. The put/call ratio is trolling near an annual low, reflecting a good deal of optimism in the options pits. And short interest is rather mild, so a potential short squeeze[2] is not an issue. 

With a lousy history of post-earnings price action and sentiment that is out of whack, the stock is setting up for another fall. Get positioned with DF May puts.

Tell us what you think here.[3]

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