Today’s option trade is on United Parcel Services (UPS) that reported better than expected earnings on 10/24/2011.
United Parcel Service Inc. (UPS) reported a 5.1% increase in third-quarter
earnings Tuesday that topped Wall Street’s profit forecast, although overall
package volume was stagnant due to a downturn in Asian exports and slack U.S. demand. Executives of the Atlanta-based shipping giant voiced cautious optimism for the fourth quarter nonetheless, saying that the U.S. economy appears to have stabilized and noting that Asian imports could increase in the weeks leading up to the holidays if U.S. consumer confidence improves.
OPTION STRATEGY:
Look at the December 2011 70 covered call. For each 100 shares of United
Parcel Service (UPS) stock you buy, sell one December 2011 70 covered call
option for a 67.72 (69.57 – 1.85) debit or better. That’s potentially a 3.37%
assigned return in 52 days for an anualized return of 23.7%. This stock also
pays a dividend which may add another 0.8% to the return. The stocks next
ex-dividend date is 11/08/2011.
TECHNICALS:
The technicals for UPS are bullish with a weak upward trend. The stock is
under accumulation with support at 67.61. S&P rates this stock 4 STARS (out
of five) – buy.
you exit the covered call trade.
S&P RESEARCH NOTES:
S&P reiterates buy opinion on shares of United Parcel Service (UPS) . Q3
EPS of $1.06, vs. $0.93, misses our $1.10 estimate, but is $0.01 above the
Capital IQ consensus forecast. UPS saw slowing international volumes and flat
U.S. volumes, but offset this with higher yields and fixed cost leverage. UPS
reaffirms prior ’11 EPS guidance of $4.15-$4.40. We trim our ’11 and ’12 EPS
estimates to $4.30 and $4.90, from $4.35 and $5.00. We keep our 12-month target price at $95, 19X our ’12 EPS estimate, and in the middle of UPS’ 5-year historical P/E range. We still think UPS is well positioned for an eventual
rebound in the global economy.
