“Cut-to-the-Chase” Recommendations
- Week Beginning August 22, 2016 -

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.



Tuesday, 23rd August, 2016
GameStop Corp. (NYSE:GME) Calls

**OPTION TRADE: Buy the GME SEPT 16 2016 33.000 call at approximately $1.10. Sell price is left to your own judgment.

GameStop Corp. (NYSE: GME), a multichannel video game retailer, will report second-quarter numbers after the market close on August 25. The consensus calls for earnings of $0.27 on revenue of $1.74 billion. During the same period last year the company earned $0.31 on share on revenue of $1.76 billion.

GameStop is coming off a better than expected second-quarter report, and if the company can post another set of better than expected numbers the stock should build on some recent momentum.

While earnings are forecast to fall year over year for the second-quarter, full year earnings are forecast to rise by a modest 2.3%. The second-quarter earnings drop has already been priced into the stock, so as long as the company reports earnings that are in-line or better than expected the stock should move higher. While the consensus calls for earnings of $0.27, the street has a higher whisper number of $0.31, which would be in-line with the same period last year. The higher whisper number is a good indication that the company will probably top the consensus.

The stock has a P/E of 8.4, so shares appear to be a little undervalued, setting the stage for a nice post-earnings move as long was results are in-line or better than expected. Activision (ATVI) and Electronic Arts (EA) recently posted better than expected results for their most recent quarters, which suggest that GameStop also enjoyed a nice quarter.

GME has gained 13.0% on the year.

Why GameStop?

GameStop's foray into the entertainment collectibles and licensed merchandising category has been profitable. The company expects the collectibles business to improve further. GameStop anticipates the collectibles business to garner revenues of $450-$500 million in 2016 and $1 billion by 2019.

During the fiscal first quarter, the collectibles business sales soared 260% to $82.3 million. The company expects the collectibles business to grow further in the fiscal second quarter. The company's pilot project in Australia was highly successful. The company is now remodeling stores to showcase more Loot products as survey shows huge demand for these.

The collaboration with AT&T and Apple has proved to be lucrative for GameStop. Spring Mobile is now AT&T's biggest dealer in the U.S. In the first quarter of fiscal 2016, the Technology Brands segment's revenues surged 62.2% year over year. Earlier, the company said that its digital, collectibles as well as technology brand businesses will drive the company's revenues higher in the second quarter.

One research analyst has rated the stock with a sell rating, eight have issued a hold rating, ten have assigned a buy rating and one has given a strong buy rating to the company’s stock. GameStop Corp. presently has a consensus rating of “Buy” and an average target price of $37.44.

GameStop Corp. has a market cap of $3.27 billion and a price-to-earnings ratio of 8.41. GameStop Corp. has a 52 week low of $24.33 and a 52 week high of $47.62. The stock’s 50-day moving average price is $29.79 and its 200-day moving average price is $29.53.



Tuesday, 23rd August, 2016
Dollar Tree, Inc. (NASDAQ:DLTR) Calls

**OPTION TRADE: Buy the DLTR SEPT 16 2016 100.000 call at approximately $1.30. Sell price is left to your own judgment.

Dollar Tree, Inc. (NASDAQ: DLTR), an operator of discount variety stores offering merchandise at the fixed price of $ 1.00, is expected to beat expectations when it reports second-quarter fiscal 2016 results on Aug 25. Last quarter, the company delivered a positive earnings surprise of 11.3%.

Discount retailers have been successful at owning a segment of the retail sector that has continued to show strong growth. From a year-to-date perspective, Dollar Tree shares have gained almost 24% against the S&P 500’s gains of about 8%. Against its peers, Dollar Tree has grown almost four times the Retail sector’s performance.

Dollar Tree has been doing well on the back of its long-term strategies and growth initiatives, including store expansion and productivity gains, tapping of new markets and incorporating innovative sales channels to serve its patrons better. Also, the company's strategy of increasing consumables mix, rolling out freezers/coolers at stores, along with multi-price point expansion bode well for top-line growth. The company is progressing well with the integration of the Family Dollar buyout. While this integration is expected to generate synergies in the long run, the related costs and cannibalization will continue affecting results throughout the integration and re-banner process.

Nonetheless, the company's strategic investments in technological advancements and acquisitions bode well. All this, along with the company's optimistic guidance for fiscal 2016 make us confident about the upcoming results.

Why Dollar Tree?

DLTR heads into its quarterly earnings release this week following a familiar pattern. Over the last few years, there has been a tendency to see Dollar Tree shares move lower into their earnings period, reflecting some anxiety from traders.

This quarter, shares of the stock have pulled back from the $100 level ahead of this week’s earnings announcement. The pullback comes immediately after shares hit an oversold reading on August 10 and conveniently frees up some overhead clearance for the stock to move higher after earnings.

The pullback puts DLTR shares in a position to bounce from their 50-day moving average and break back above the shorter-term 20-day moving average, a move that on increased volume would attract technical buyers.

In addition, due to the lack of volatility in the shares of late, the Bollinger Bands have contracted. This means that a slight move higher (above $97.65) would press an increase in upside volatility.

Shares of Dollar Tree Inc. have been assigned an average rating of “Buy” from the twenty-five research firms that are currently covering the firm. One equities research analyst has rated the stock with a sell recommendation, six have given a hold recommendation, seventeen have assigned a buy recommendation and one has given a strong buy recommendation to the company. The average 12 month price target among analysts that have issued a report on the stock in the last year is $94.06.

Conclusion

It is always preferable when a stock has lowered expectations ahead of earnings. Currently, short interest and Wall Street analysts’ recommendations reflect a lot of pessimism towards Dollar Tree. Only 43% of analysts currently have the shares ranked a buy, and more than seven times the average daily volume is tied-up in bearish short positions that are likely to result in a short covering rally on even a slight earnings beat.

Dollar Tree Inc. has a market capitalization of $22.56 billion and a P/E ratio of 49.88. The firm’s 50 day moving average is $95.72 and its 200 day moving average is $85.82. Dollar Tree Inc. has a 1-year low of $60.31 and a 1-year high of $99.93.



Monday, 22nd August, 2016
Toll Brothers Inc (NYSE:TOL) Calls

**OPTION TRADE: Buy the TOL SEPT 16 2016 30.000 call at approximately $0.50. Sell price is left to your own judgment.

Toll Brothers Inc (NYSE: TOL), a U.S. homebuilder, is scheduled to report its fiscal third-quarter results tomorrow, August 23. The company will post its quarterly numbers before the market open, with analysts forecasting earnings of $0.63 per share on revenue of $1.25 billion.

During the same period last year, the company earned $0.36 per share and had revenue of $1.03 billion.

Toll Brothers posted solid numbers last quarter, and if the company can post another set of strong numbers for its fiscal third-quarter the stock may finally break out of the sideways trend it has been stuck in during the first half of the year. The housing market continues to recover, and with interest rates expected to remain low well into next year the housing market should remain strong. Wall Street expects Toll Brothers to enjoy 31.5% for the full year, and the stock has a P/E of just 13.9, so the stock should trend higher barring any huge earnings miss. Interest rates remain near zero, and with a very small chance of rising any time soon, the housing market should remain strong enough to keep interest in homebuilding stocks.

It has generally been a good earnings season for homebuilders, and Wall Street has a whisper number on TOL’s earnings of $0.65, which is two pennies above the consensus.

Toll Brothers Inc. are heading into 2nd half of this year on a positive note as the stock provided some gains of 10.56% over the past 6 months. More recently the stock is 2.90% over the past 5 trading days. Looking a bit further out the stock is 2.79% for the month and 4.39% for the quarter.

Toll Brothers Inc. was upgraded by analysts at TheStreet from a “hold” rating to a “buy” rating in a research note issued last Monday.

One research analyst has rated the stock with a sell rating, nine have given a hold rating, eleven have given a buy rating and one has given a strong buy rating to the stock. The company presently has an average rating of “Buy” and an average price target of $38.34.

Toll Brothers has a 1-year low of $23.75 and a 1-year high of $42.19. The stock has a market cap of $4.77 billion and a P/E ratio of 13.87. The stock has a 50 day moving average price of $27.76 and a 200-day moving average price of $27.83.



Monday, 22nd August, 2016
Best Buy Co Inc (NYSE:BBY) Calls

**OPTION TRADE: Buy the BBY SEPT 16 2016 35.550 call at approximately $0.30. Sell price is left to your own judgment.

Best Buy Co Inc (NYSE: BBY), a multinational, multichannel retailer of technology products, including tablets and computers, televisions, mobile phones, large and small appliances, entertainment products, digital imaging and related accessories as well as and technology services, is scheduled to release its second-quarter numbers before the market open on August 23. Analysts forecast earnings of $0.42 and sales of $8.42 billion for the quarter. During the same period last year the company had earnings of $0.49 per share and sales of $8.53 billion.

For the full year, earnings are expected to rise a modest 3.6%, but Best Buy has easily topped estimates the last four quarters, and if it can continue that streak with its second-quarter report, the full year growth could be much greater. Following two months of steady gains, profit taking has hit the stock a little over the last couple of weeks, but the stock would regain its upward momentum in the wake of another strong quarterly report.

The stock has a low valuation, with a P/E of just 11.2, so the stock has significant upside potential following another earnings beat.

The stock has been trending higher since its last earnings report at the start of summer, and shares are currently up 7.8% on the year.

Why Best Buy?

Best Buy has been posting better-than-expected results over the last 14 quarters and the trend is expected to continue in the second-quarter of fiscal 2017. Improvement in online comparable sales, driven by higher traffic and conversion rates, is driving the company’s top line and bottom line.

In the previous quarter, the company reported a 23.9% surge in online comparable sales, driven by improved traffic and conversion rates. The company is investing extensively to upgrade its operations with special focus on developing omni-channel capacities and cementing its relationship with vendors.

Management had earlier projected Enterprise revenues between $8.35 billion and $8.45 billion for the fiscal second quarter. Comparable sales are expected to remain flat year over year. Management expects earnings in the range of 38 cents–42 cents per share.

Conclusion

Best Buy stock has had a volatile year so far, bouncing between support near $30 and resistance at $35. BBY’s latest rally was cut short just as the shares appeared ready to break out above $35. Target’s poor earnings reception led to a nearly 3% haircut for Best Buy stock in sympathy.

But BBY needed a bit of a blow-off ahead of its quarterly report, as the shares were nearing overbought levels. As a result, Best Buy stock now has a bit more room to run heading into the week.

Wall Street is expecting Best Buy earnings to fall about 14% year-over-year to 43 cents per share. Revenue is seen slipping 1.6% to $8.4 billion. However, EarningsWhispers.com reports a whisper number of 48 cents per share for Best Buy. Hitting this target could provide the boost BBY stock needs to finally leave $35 in the rearview.

Best Buy’s 50-day moving average is $32.66 and its 200 day moving average is $31.70. The firm has a market capitalization of $10.52 billion and a P/E ratio of 11.21. Best Buy has a 52 week low of $25.31 and a 52 week high of $39.10.




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