Options Trade for Friday
Staples, Inc. (NASDAQ:SPLS) Calls 
Friday, March 06, 2015

** OPTIONS TRADE FOR FRIDAY: Buy the SPLS Jun 2015 16.000 call (SPLS150619C00016000) at or under $1.25, good for the day. Place a protective stop limit at $0.50 and a pre-determined sell at $2.25.


by Ian Harvey

Friday, March 06, 2015


**Time For A Positive Move After Staples Earnings Report!**

Staples, Inc. (NASDAQ: SPLS), an office products company that operates in three business segments: North American Stores & Online, North American Commercial and International Operations, is scheduled to report its fiscal fourth-quarter earnings this morning before the markets open. Thomson Reuters has consensus estimates of $0.30 in earnings per share (EPS) and revenue of $5.76 billion. The same period in the previous year had $0.33 in EPS and $5.87 billion in revenue. Staples has risen more than 50% from its 12-month lows.

2015 has been an interesting year for SPLS so far, as news of a merger with Office Depot Inc (NASDAQ:ODP) propelled the shares to a three-year high of $19.40 on Feb. 3. Since then, the shares have retreated 14.6% to hit $16.56, which makes it a viable proposition for this options trade.

However, there are conflicting analysts’ reports ahead of the earnings report with the investment bank B. Riley reiterating a Neutral rating with a price target of $14. The price target actually implies a downside of 15% from current prices -- but the consensus analyst price target of $17.44 implies an upside of 5.8%.

But, TD Ameritrade Chief Strategist, JJ Kinahan, explained that Staples, Inc. was up nearly 30 percent since its last earnings release and from a historical volatility perspective, the stock was at the 93rd percentile, and the market expected a move of over 4.5 percent in the stock following earnings, Kinahan noted, based on implied volatility in the options market.

Technical Oulook

Staples has a one year low of $10.70 and a one year high of $19.40. The stock has a 50-day moving average of $16.94 and a 200-day moving average of $14.50.

The company has a market cap of $10.755 billion and a price-to-earnings ratio of 18.28.


Staples last released its earnings data on Wednesday, November 19th. The company reported $0.37 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.36 by $0.01. The company had revenue of $5.96 billion for the quarter, compared to the consensus estimate of $5.95 billion.

During the same quarter in the previous year, the company posted $0.42 earnings per share. The company’s revenue for the quarter was down 2.5% on a year-over-year basis. Analysts expect that Staples will post $0.96 EPS for the current fiscal year.

Positive Factors!

TheStreet Quant Ratings rates Staples as a buy. “The company's strengths can be seen in multiple areas, such as its compelling growth in net income, attractive valuation levels, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins.”

Highlights from the ratings report include:

“The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 60.3% when compared to the same quarter one year prior, rising from $135.23 million to $216.79 million.

• Net operating cash flow has increased to $604.60 million or 14.60% when compared to the same quarter last year. In addition, Staples Inc has also modestly surpassed the industry average cash flow growth rate of 13.79%.

• SPLS's debt-to-equity ratio is very low at 0.19 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.76 is somewhat weak and could be cause for future problems.

• Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.”

Analysts Opinions

Analysts at B. Riley reiterated a “neutral” rating and set a $14.00 price target on shares of Staples in a research note yesterday.

Also, Staples had its “neutral” rating reaffirmed by analysts at Zacks. They now have a $18.00 price target on the stock.

Zacks’ analyst wrote, “Staples has agreed to buy rival Office Depot for $6.3 billion in cash and stock, a deal which will combine the two biggest office supply retailers. The two companies together would create a retail chain with about $39 billion in revenue and over a thousand store locations. This specific merger is not a new idea. The same potential union was shot down 18 years ago by the Federal Trade Commission, saying that the acquisition was anticompetitive. However, an ever-changing consumer landscape might push it forward this time, as office supply retailers are facing more and more competition from online retailers. The agreement also stems from pressure from hedge fund Starboard Value, which noted that the cost savings from such a combination could more than double the combined company’s profit. However, with the regulatory approval still pending, we stay Neutral on the stock.”

A number of other research reports have been presented recently, these are as follows:-

Analysts at Goldman Sachs upgraded shares of Staples from a “sell” rating to a “neutral” rating and raised their price target for the stock from $14.00 to $16.00 in a research note on Friday, February 6th.

Analysts at Telsey Advisory Group raised their price target on shares of Staples from $18.00 to $23.00 and gave the company an “outperform” rating in a research note on Thursday, February 5th.

Finally, analysts at Janney Montgomery Scott upgraded shares of Staples from a “neutral” rating to a “buy” rating and set a $22.00 price target on the stock in a research note on Wednesday, February 4th

One equities research analyst has rated the stock with a sell rating, twelve have assigned a hold rating and four have assigned a buy rating to the company. Staples has an average rating of “Hold” and an average target price of $16.65.


It seems that it might be time for Staples to overcome its’ after-report decline as it has in the last four reporting sessions. It is now time for the company to turn to a more positive track which will bode well for this options trade.

Therefore, based on the facts above the following options trade is recommended…..

** OPTIONS TRADE FOR FRIDAY: Buy the SPLS Jun 2015 16.000 call (SPLS150619C00016000) at or under $1.25, good for the day. Place a protective stop limit at $0.50 and a pre-determined sell at $2.25.

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