Agricultural concern Monsanto Company (MON) has had a rough several months. In fact, Monsanto stock has shed roughly 27% since early May, and the shares are now trading near their lowest point since 2012.
The company has a chance to remedy this situation for stockholders, however, with third-quarter earnings expected to hit the Street ahead of the open this Wednesday.
Wall Street is looking for respectable year-over-year gains from Monsanto, with earnings expected to rise from a loss of 27 cents per share last year to a two-cent-per-share loss in the most recent quarter. Revenue, meanwhile, is anticipated to rise 5.3% to $2.77 billion.
Sentiment within the brokerage community has a very bullish slant heading into the report. For instance, data from Thomson/First Call reveals that 14 of the 23 analysts following MON stock rate the shares a “buy” or better. And the 12-month price target of $120 represents a premium of more than 37% to Friday’s close.
But with Monsanto stock trading near multi-year lows, a poor quarterly report could prompt an unwinding of this bullish sentiment.
Turning to MON options activity, we find that speculative traders are betting very heavily against the stock. Specifically, the October put/call open interest ratio for Monsanto stock currently rests at an elevated 2.49, with puts more than doubling calls among options set to expire within the next month.
This ratio falls to 1.79 in the weekly October 9 series of options, but still displays a more-than-healthy disdain for Monsanto stock ahead of this week’s quarterly report.
Click to EnlargeOverall, weekly October 9 series implieds are pricing in a potential post earnings move of about 6% for MON stock. This places the upper bound at $92, while the lower bound lies at $82.
A breach of long-term support at $85 could solidify MON’s current downtrend for the intermediate term, while a rally to $92 would put the shares north of all their short-term daily moving averages.
2 Trades for MON Stock
Call Spread: There are reasons to side with the brokerage bunch ahead of Wednesday’s report. For one, Monsanto stock is currently rebounding from oversold levels, and could have momentum on its side. A strong report could provide additional fuel for this rally, ultimately proving analysts correct. Those looking to side with MON bulls might want to consider an October $87.50/$91.50 bull call spread.
At last check, this spread was offered at $1.48, or $148 per pair of contracts. Breakeven lies at $88.98, while a maximum profit of $2.52, or $252 per pair of contracts, is possible if MON closes at or above $91.50 when October options expire.
Put Spread: Alternately, Monsanto stock is certainly at risk of extending its recent downtrend, especially if earnings fail to recover this quarter. As such, those wanting to side with the bears in the options pits might consider an October $83/$87 bear put spread.
At last check, this spread was offered at $2.16, or $216 per pair of contracts. Breakeven lies at $84.84, while a maximum profit of $2.84, or $284 per pair of contracts, is possible if Monsanto closes at or below $83 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
