Ford Motor Company (F) rolls onto Wall Street for another quarterly tuneup on Tuesday, and Wall Street is looking for solid year-over-year gains.
Specifically, the consensus is expecting third-quarter earnings to rise nearly 96% of 47 cents per share, with revenue seen advancing 6.9% to $35.07 billion.
With the rest of Ford’s sentiment backdrop lingering in bearish territory, F stock could be a contrarian trading opportunity.
Historically, Ford earnings have surpassed Wall Street’s expectations, with the company topping the consensus in six of the past eight quarters. There are no whispers coming out of the brokerage community, but Thomson/First Call looks bearish with 12 of the 20 analysts following Ford stock rating the shares a “hold” or worse.
Furthermore, the 12-month consensus price target of $18 reveals that there is wiggle room for an upgrade or two, representing a premium of only about 15.5% to F stock’s current perch.
Options traders, meanwhile, appear divided on F stock. On one hand, the October/November put/call open interest ratio currently rests at 0.97, with puts in near parity with calls among short-term contracts. However, this ratio plummets to a reading of 0.43 for the weekly Oct. 30 series, with calls nearly doubling puts among options most directly influenced by Ford’s earnings report.
Overall, Ford stock weekly Oct 30 series implieds are pricing in a potential post-earnings move of about 5%. This places the upper bound near $16.28, while the lower bound lies at about $14.72. A rally past $16 could be a major coup for F stock bulls, as the region has acted as resistance for several months. Meanwhile, technical support is thick in the $14.50-$15 region, potentially limiting the stock’s losses.
2 Trades for F Stock
Call Spread: For those looking for a contrarian play ahead of Ford earnings, a Nov $16/$16.50 bull call spread has plenty of potential. At last check, this spread was offered at 11 cents, or $11 per pair of contracts. Breakeven lies at $16.11, while a maximum profit of 39 cents, or $39 per pair of contracts, is possible if F stock closes at or above $16.50 when November options expire.
Put Sell: If a call spread is too bullish for you, then a more neutral weekly Oct 30 series $14.5 put sell may be what you are looking for. At last check, the Oct 30 $14.50 put was bid at 7 cents, or $7 per contract.
The upside to this put sell strategy is that you keep the premium as long as F stock closes above $14.50 when October options expire at the end of next week. The downside is that should F trade below $14.50 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $14.50 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
