“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, March 20, 2017

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


Option Trade – Finish Line Inc (NASDAQ:FINL) Puts

Wednesday, March 22, 2017

** OPTION TRADE: Buy the FINL APRIL 21 2017 16.000 PUT at approximately $0.90. Sell price is left to your own judgment.

Finish Line Inc (NASDAQ:FINL), a specialty retailer of athletic shoes, apparel and accessories, is scheduled to be posting its quarterly earnings results before the market opens on Friday, March 24th. Analysts expect Finish Line to post earnings of $0.71 per share for the quarter.

Stock analysts at Wedbush dropped their Q4 2017 earnings per share estimates for Finish Line in a research note issued on Friday. Wedbush analyst C. Svezia now expects that the firm will post earnings of $0.68 per share for the quarter, down from their prior estimate of $0.70. Wedbush currently has a “Neutral” rating and a $18.00 target price on the stock. Wedbush also issued estimates for Finish Line’s Q1 2018 earnings at $0.24 EPS, Q2 2018 earnings at $0.62 EPS, Q3 2018 earnings at ($0.26) EPS, Q4 2018 earnings at $0.79 EPS, FY2018 earnings at $1.38 EPS and FY2019 earnings at $1.53 EPS.

Finish Line last released its quarterly earnings data on Wednesday, December 21st. The company reported ($0.24) earnings per share (EPS) for the quarter, missing the consensus estimate of ($0.18) by $0.06. Finish Line had a negative net margin of 0.25% and a positive return on equity of 11.57%. The company earned $371.70 million during the quarter, compared to analyst estimates of $411.61 million. During the same quarter in the prior year, the company earned ($0.49) EPS. The business’s revenue was down 2.7% on a year-over-year basis. On average, analysts expect Finish Line to post $1.24 EPS for the current fiscal year and $1.47 EPS for the next fiscal year.

Influencing Factors to Consider               

Finish Line has underperformed the categorized Retail – Apparel/Shoe industry in the past six months. Shares of the company have slumped 27.5% over the past six months compared with the industry’s decline of 12.5%. Finish Line delivered lower-than-expected results in the last quarter, which was largely hampered by weakness in the soft goods category.

Following the fiscal third quarter, management stated that it expects the soft goods category to remain unfavorable in the near term.

Also, a delay in tax refunds is expected to shift February sales into March, thus weighing on the fiscal fourth-quarter top line.

Considering these factors, management forecasted fiscal fourth-quarter comps to decline in a range of 3–5%, while earnings were projected in a range of 68–73 cents per share.

Moreover, an intensely promotional retail environment is expected to dent product margins, which is anticipated to decline 150–200 basis points.

Analysts and Hedge Funds Opinions

Finish Line‘s stock had its “hold” rating reiterated by analysts at Canaccord Genuity in a note issued to investors on Tuesday. They currently have an $18.00 price objective on the stock.

The analysts wrote, “We are cautious on FINL heading into Q4 results on Friday, March 24 BMO largely due to what we believe was a challenged February driven by the delayed tax refunds. The company guided to a Q4 impact of 200-300bps from the tax delays; however, it could have been worse. We are projecting EPS of 69c vs. consensus of 71c and guidance of 68c-73c on a comp decline of 4%, within the guided range of -3% to -5%. The weakness in apparel that continues to plague FINL coupled with the heightened promotional environment leads us to believe there is further downside risk of ~100bps/2c to our current comp/EPS estimate of -4%/69c. We are projecting gross margin contraction of 283bps due to apparel markdowns and occupancy deleverage. We expect SG&A to leverage by ~95bps as FINL is comparing against the incremental spend related to supply chain disruptions last year as well as the beginnings of expense reductions.””

Also, Finish Line was downgraded by research analysts at Mizuho from a “buy” rating to a “neutral” rating in a report issued on Thursday. They currently have an $18.00 target price on the stock, down from their prior target price of $23.00.

In other news, Director Glenn S. Lyon sold 75,000 shares of Finish Line stock in a transaction dated Thursday, December 29th. The shares were sold at an average price of $18.89, for a total value of $1,416,750.00.

Summary

Therefore, given the aforementioned challenges and a conservative outlook, the above options trade is recommended.

Finish Line’s market cap is $659.51 million. The firm has a 50-day moving average of $16.95 and a 200 day moving average of $20.17. Finish Line Inc. has a 1-year low of $15.90 and a 1-year high of $24.52.


Option Trade – PVH Corp (NYSE:PVH) Puts

Wednesday, March 22, 2017

** OPTION TRADE: Buy the PVH APRIL 21 2017 85.000 PUT at approximately $1.00. Sell price is left to your own judgment.

PVH Corp (NYSE:PVH), an apparel company, will present quarterly earnings today, after the market closes.

The owner of Calvin Klein, Tommy Hilfiger and Speedo brands is expected to report earnings to fall 21.6% to $1.19 in the fourth quarter, while its total sales are likely to fall 1% to $2.1 billion. During the same quarter a year ago, the company posted earnings of $1.52 a share on sales of $2.11 billion.

PVH Corporation markets a wide variety of its own clothing line as well as branded apparel and accessories. Its stock price rallied more than 75% in the first three quarters of 2016, but began pulling back in October that year, retracing 62% of that gain by February 2017.

Influencing Factors to Consider          

Management remains cautious of the overall volatility in the U.S. retail segment, intense promotions and unpredictable global consumer spending. Further, the company’s international presence and outlets in various tourist destinations in the U.S. expose it to foreign currency risks in the current scenario. 

In fact, the company expects currency headwinds to persist and impact results in the fourth quarter and fiscal 2016. Evidently, the company envisions fiscal 2016 adjusted earnings per share in the range of $6.70–6.75, which includes an expected $1.65 per share negative impact from currency headwinds. Revenues for fiscal 2016 are anticipated to grow 2% year over year, while on a currency neutral basis revenues are expected to rise about 3%.

For the fourth quarter, the company expects total revenue to dip 1% year over year, while it is anticipated to inch up 1% on a constant-currency basis.

Further, fourth quarter revenues are expected to bear the brunt of Mexico deconsolidation and the licensing agreement with G-III Apparel Group, Ltd. Adjusted earnings per share for the fourth quarter are expected to be $1.13–$1.18, including 23 cents per share negative impact from currency translations.

Analysts and Hedge Funds Opinions

Raymond James Financial Services Advisors Inc. reduced its position in PVH Corp by 28.2% during the fourth quarter, according to its most recent disclosure with the SEC.

Zacks Investment Research downgraded shares of PVH Corp from a “buy” rating to a “hold” rating in a research report on Wednesday, February 1st.

Evercore ISI downgraded shares of PVH Corp from a “buy” rating to a “hold” rating in a research report on Wednesday, February 1st.

Six analysts have rated the stock with a hold rating and ten have issued a buy rating to the company’s stock.

Summary

Therefore, investors remain somewhat apprehensive of the company’s ability to maintain its robust earnings surprise trend.

PVH Corp has a market cap of $7.50 billion, a price-to-earnings ratio of 13.24 and a beta of 0.67. PVH Corp has a 52-week low of $82.10 and a 52-week high of $115.40. The stock has a 50 day moving average of $90.53 and a 200 day moving average of $100.40.

PVH is currently trading at a one-year PE (price-to-earnings) earnings multiple of 13.3x, operating closer to the lower end of its 52-week PE ratio range of 12x–16.3x.


Option Trade – Micron Technology, Inc. (NASDAQ:MU) Calls

Tuesday, March 21, 2017

** OPTION TRADE: Buy the MU APRIL 21 2017 27.000 CALL at approximately $0.90. Sell price is left to your own judgment.

The Boise, Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, is set to post its most recent quarterly report on March 28. Many analysts indicate the stock is positioned for an additional boost on a strong earnings beat. Micron’s stronger-than-expected earnings have been driven by improved DRAM and NAND pricing and favorable supply-demand dynamics in an industry where many major suppliers exited during a 2014 slump. Further, the semiconductor manufacturer has benefited from an improved product mix and a solid demand for PCs, servers and mobiles that require its chip technology.

In the fiscal first quarter, Micron saw its shares surge after posting adjusted earnings per share (EPS) of $0.32 on revenues, up 23% on a quarterly basis, surpassing analysts’ consensus estimates. For the quarter to be announced later this week, analysts expect EPS to come in at $0.84 on revenue of $4.64 billion, compared to a loss of $0.05 per share on revenue of $2.93 billion reported over the same period last year.

In the last 30 days, the Consensus Estimate for the second quarter and fiscal 2017 witnessed upward revisions. For the fiscal second quarter, the Consensus Estimate is currently pegged at 77 cents per share, up 22 cents from earnings of 55 cents projected 30 days ago. The Consensus Estimate for fiscal 2017 is currently pegged at $2.33 cents per share, compared with $1.83 projected 30 days ago.

Influencing Factors to Consider               

The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and higher-than-expected demand for PCs, servers and mobiles.

The benefit from improved pricing is well reflected in the company’s last quarterly results. The company’s first-quarter fiscal 2017 revenues not only increased 18.5% on a year-over-year basis, but also surpassed the Consensus Estimate of $3.784 billion. Most importantly, it witnessed a 5% increase in DRAM average selling prices (ASP) during the quarter.

The company’s first-quarter adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 28 cents came ahead of the Consensus Estimate as well as the year-ago quarter’s figure of 24 cents.

It should be noted that Micron has been expanding in the SSD storage market due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.

Notably, the company has an interesting partnership with Seagate STX. Under the agreement, Micron supplies a significant portion of Seagate’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology that the latter lacks in the enterprise SSD market. We believe that this deal will expand Micron’s high-value enterprise SSD portfolio.

Additionally, the acquisition of Inotera in 2016 is anticipated to be accretive to Micron’s DRAM gross margin, earnings per share and free cash flow. According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.

The company anticipates the aforementioned factors to also have a positive impact on its fiscal second-quarter results.

Also, on the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 11.2x, significantly lower than the categorized Electronics-Semiconductor industry average of 15.2x.

Analysts and Hedge Funds Opinions

Susquehanna analyst Mehdi Hosseini has weighed in on the upcoming fiscal Q2 report, indicating investors should not get too worried about Samsung Electronics’ DRAM production. Some have indicated that the Korean firm’s larger DRAM presence could threaten the favorable supply-demand dynamics that have boosted Micron’s shares.

As well, Instinet’s Romit Shah reiterates a Buy rating on shares of DRAM and NAND chip maker Micron Technology (MU), writing that the “setup” for the stock is “noticeably different” today than it was in 2014, when the stock last peaked, before beginning a 74% or so decline until last Spring.

Four equities research analysts have rated the stock with a hold rating, thirty-two have assigned a buy rating and one has given a strong buy rating to the company’s stock.

Analysts’ one-year price target estimate on Micron’s shares at $32.79 indicates an approximate 26% upside from its current trading price at $25.94.

Summary

An encouraging top- and bottom-line guidance for the second quarter, way above the respective Consensus Estimate, have helped in boosting  confidence about the company’s future prospects.

Micron Technology has a 12 month low of $9.35 and a 12 month high of $26.23. The company’s 50 day moving average price is $24.42 and its 200-day moving average price is $20.35. The stock’s market capitalization is $28.72 billion.


Option Trade – General Mills, Inc. (NYSE:GIS) Puts

Monday, March 20, 2017

** OPTION TRADE: Buy the GIS APRIL 21 2017 60.000 PUT at approximately $1.20. Sell price is left to your own judgment.

Minneapolis-based General Mills, Inc. (NYSE:GIS), a consumer-goods maker, will post fiscal third-quarter results March 21. The company will announce its quarterly numbers before the market open, with the consensus calling for earnings of $0.71 per share on revenue of $3.82 billion. During the same period last year the company earned $0.65 on $4 billion.

General Mills sold off sharply during the latter half of 2016 in the face of declining revenues, and there remains a lot of negativity priced into the stock.

Last quarter the company missed its earnings estimate by a penny, but prior to that report the company had outpaced estimates three straight quarters. Analysts remain cautiously optimistic on the stock, setting an average price target of $63.00.

GIS shares have fallen 1.9% on the year.

Influencing Factors to Consider               

On March 15, 2017, General Mills was trading at $61.16, which represents a decline of 3.0% since the company announced its fiscal 2Q17 earnings on December 20, 2016. The lower-than-expected fiscal 2Q17 earnings, as well as its reduced sales guidance and EPS (earnings per share) growth for fiscal 2017, seems to have made investors skeptical of future earnings, leading to a decline in its stock price.

In fiscal 2Q17, the company posted EPS of $0.85 against analysts’ estimate of $0.87. On February 17, 2017, the company announced that its sales for fiscal 2017 would fall 4% from its earlier estimate of a decline in the range of 3%–4%. The company’s management also lowered its EPS growth guidance to range from 5%–7% from its earlier guidance of 6%–8%.

Since the beginning of 2017, the company’s stock has fallen 1.9% as the company struggled in the Yogurt and Soup categories in the US. This faltering performance was due to the widening gap between the promotional activities of General Mills and its competitors.

During the same period, Kellogg (K), B&G Foods (BGS), and Pinnacle Foods (PF) have returned 1.4%, -4.0%, and 10.1%, respectively. The broader comparative index, the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (RHS), has returned 6.0% year-to-date. RHS has 35.6% of its total holdings in food and beverage companies.

Analysts expect General Mills to post revenues of ~$3.8 billion, representing a 4.3% fall from $4.0 billion in fiscal 3Q16. The company’s management forecast a 4% decline in its organic sales for fiscal 2017. Its management expects the widening gap in promotional activities by General Mills and its peers in the Yogurt and Soup categories to negatively impact the company’s sales during the second half of fiscal 2017.

Moving to General Mills’s International segment, analysts expects the strengthening US dollar and the restructuring of the Snacks business in China to lower General Mills’s fiscal 3Q17 revenues.

Director Robert L. Ryan sold 20,000 shares of the stock in a transaction that occurred on Wednesday, January 11th. The shares were sold at an average price of $60.83, for a total transaction of $1,216,600.00.

Analysts and Hedge Funds Opinions

United Capital Financial Advisers LLC cut its position in shares of General Mills, Inc. by 3.3% during the fourth quarter, Holdings Channel reports. The firm owned 58,515 shares of the company’s stock after selling 1,971 shares during the period. United Capital Financial Advisers LLC’s holdings in General Mills were worth $3,614,000 as of its most recent SEC filing.

As well, several research analysts recently weighed in on the stock…..

  • Deutsche Bank AG assumed coverage on shares of General Mills in a research report on Wednesday, February 15th. They issued a “hold” rating and a $61.00 price objective for the company.
  • Royal Bank of Canada cut shares of General Mills from an “outperform” rating to a “sector perform” rating and dropped their price objective for the stock from $73.00 to $69.00 in a research report on Thursday, December 15th.
  • Wells Fargo & Co restated a “market perform” rating on shares of General Mills in a research report on Tuesday, December 27th.
  • Finally, Barclays PLC dropped their price objective on shares of General Mills from $66.00 to $64.00 and set an “equal weight” rating for the company in a research report on Wednesday, December 21st.

Three investment analysts have rated the stock with a sell rating, eleven have issued a hold rating and three have issued a buy rating to the stock.

Summary

General Mills, Inc. has a 12 month low of $58.70 and a 12 month high of $72.95. The firm’s 50 day moving average is $61.33 and its 200 day moving average is $62.51. The company has a market cap of $35.18 billion, a PE ratio of 22.65 and a beta of 0.56.





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