Filed under: Analyst reports, Forecasts, Bad news, Dean Foods (DF), Options, Technical Analysis
Dean Foods Co. (NYSE: DF) stumbled in early trading after announcing job cuts and a lower profit forecast due to higher costs and slowing sales. A Stifel Nicolaus analyst also cut his price target on the stock by $3 to $31 and lowered his earnings estimates for the stock. However, the analyst did maintain a buy rating on the company, as he expects cost pressures to ease. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on DF.
After hitting a one-year high of $50.50 in March, the stock fell to a one-year low of $24.11 in late September. This morning, DF opened at $24.66. So far today the stock has hit a low of $24.56 and a high of $26.77. As of 10:45, DF is trading at $26.12, down $0.17 (-0.6%). The chart for DF looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a December bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in 3 months as long as DF is below $30 at December expiration. Dena Foods would have to rise by more than 14% before we would start to lose money.
Continue reading Dean Foods (DF) lowers forecast and cuts jobs
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