Shares of CEMEX (CX), a Mexican building materials supplier and cement producer, are up 17.31% year to date. Despite the healthy returns already in 2014, CEMEX has more upside to come with the return to profitability expected to come next year (estimates of $0.37 in EPS in 2015). Last year, the company reported a loss of $0.71 in EPS and will narrow that loss to just $0.15 this year. Revenue will grow 7.7%-7.8% over the next two years. CEMEX trades at a price/sales ratio of 1.06x and price/book ratio of 1.59x. The average analyst price target is $14.62. The current short interest is 7.7% of the total float (14 days to cover based on the average daily volume). On Thursday, June 5, EU regulators unconditionally approved a German deal with Holcom, a Switzerland-based cement company, and CEMEX. The deal allows Holcom to acquire cement plants in western Germany owned by CEMEX.
Unusual Options Activity
Over the course of Tuesday and Wednesday (June 10 and 11), more than 42,000 July 14 calls traded with the majority being purchased on the offer price (ranging from $0.21-$0.27). On Wednesday, the call to put ratio was 17:1. Call activity was over 8x the average daily volume. Implied volatility rose 4.1% to 27.27. These calls will expire just after the Q2 earnings date of Friday, July 18.
Technical Analysis
CEMEX shares started to breakout above the ascending triangle that had been in place since late winter just before the large July $14 call buying. The bullish price action sets up for a measured move to $14.50 this summer at a minimum (see the chart for more on the measured move and ascending triangle). A stop loss on a long stock position can be placed just under the 50-day exponential moving average (currently $12.69).
CEMEX Options Trade Idea
Buy the July $14 call for $0.25 or better
Stop loss- None
First upside target- $0.50
Second upside target- $0.75
Third upside target- $1.00
Disclosure: I’m long the July $14 calls for $0.25 each.
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