Options Trade – The Valspar Corporation (NYSE:VAL) Calls
Monday, February 10, 2014

**OPTIONS TRADE: Buy the VAL Apr 2014 75.000 call (VAL140419C00075000) at or under $1.30, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.20.

by Ian Harvey

February 10, 2014

Introduction

Paint manufacturer, The Valspar Corporation (NYSE: VAL) is scheduled to report its fiscal first quarter results before the market opens on February 12. Analysts have forecast Valspar to report earnings of $0.66 per share, up from $0.60 during the same period last year. The stock has traded lower in 2014, but its loss of just 2.7% is actually outperforming the broader market.

Valspar has a mixed track record on earnings; having missed analysts estimates two out of the last four times that it reported. Regardless of the two misses, the stock managed to post a respectable 15.9% during 2013. Valspar has a large exposure to housing, which helped it perform well in 2013.

Company Details

The Valspar Corporation is a global coating and paint manufacturer and distributor. The Company manufactures and distributes a range of coatings, paints and related products. It operates its business in two segments: Coatings and Paints.

In February 2011, the Company acquired Isocoat Tintas e Vernizes Ltda. (Isocoat). In August 2013, the Company announced that it has completed the acquisition of Inver Holding S.r.l.

Key Statistics for VAL

Current P/E Ratio (ttm) 21.0756
Estimated P/E(10/2014) 17.5301
Relative P/E vs. SPX 1.2688
Earnings Per Share (USD) (ttm) 3.3878
Est. EPS (USD) (10/2014) 4.0730
Est. PEG Ratio 1.9478
Market Cap (M USD) 6,097.67
Shares Outstanding (M) 85.40
30 Day Average Volume 588,978
Price/Book (mrq) 5.4569
Price/Sale (ttm) 1.5253
Dividend Indicated Gross Yield 1.46%
Cash Dividend (USD) 0.2600
Dividend Ex-Date 11/27/2013
5 Year Dividend Growth 10.76%
Next Earnings Announcement 02/12/2014

Earnings

Valspar Corp. last posted its quarterly earnings results on Tuesday, November 19th. The company reported $0.97 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.92 by $0.05. The company had revenue of $1.11 billion for the quarter, compared to the consensus estimate of $1.09 billion.

During the same quarter last year, the company posted $0.86 earnings per share. Valspar Corp.’s revenue was up 8.2% compared to the same quarter last year.

Analysts Opinions

Robert W. Baird upgraded shares of Valspar Corp. (NYSE:VAL) from a neutral rating to an outperform rating in a research note issued to investors last Thursday. The firm currently has $80.00 price target on the stock, up from their previous price target of $75.00.

Also, Valspar Corp. has been the subject of a number of research reports:-

• Analysts at Zacks reiterated a neutral rating on shares of Valspar Corp. in a research note to investors on Thursday, November 21st. They now have a $75.00 price target on the stock.

• Separately, analysts at Citigroup Inc. reiterated a neutral rating on shares of Valspar Corp. in a research note to investors on Thursday, November 21st. They now have a $73.00 price target on the stock, up previously from $69.00.

• Finally, analysts at RBC Capital raised their price target on shares of Valspar Corp. from $74.00 to $80.00 in a research note to investors on Wednesday, November 20th. They now have an outperform rating on the stock.

Six equities research analysts have rated the stock with a hold rating and five have assigned a buy rating to the stock. The stock currently has an average rating of Hold and a consensus target price of $76.30.

Analyst Firms Making Recommendations

BAIRD R W BARCLAYS CAPITA
CLSA AMERICAS CO FORECST
DEUTSCHE BK SEC FIRST ANALYSIS
GABELLI & COMPA GOLDMAN SACHS
J.P. MORGAN KEYBANC CAP MKT
MORGAN STANLEY NORTHCOAST RESE

Conclusion

After a prolonged downwards trend in 2008 and 2009 during the economic crisis, Valspar stock has shot higher in recent years as the housing market has improved, and it is expected to see more of the same moving forward. There is a concern that rising interest rates will put a crimp in the housing recovery, but no one is expecting another crash like we witnessed in 2008. Home prices have been on the rise, and are expecting to continue rising in 2014.

During its most recent earnings report, the company forecast accelerated revenues and earnings gains through 2014, with revenues expected to rise 7% to 9% during the year. There is bullish action on the stock, and it has a reasonable valuation, with a price-to-earnings ratio of 21. Expect a decent quarter, which should help it keep strong and also give a decent account to this options trade.

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


**OPTIONS TRADE: Buy the VAL Apr 2014 75.000 call (VAL140419C00075000) at or under $1.30, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.20.



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