“Cut-to-the-Chase” Recommendations
- Week Beginning November 14, 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.


Option Trade – Abercrombie & Fitch Co. (NYSE:ANF) Puts

Thursday, November 17, 2016

**OPTION TRADE: Buy the ANF DEC 16 2016 17.000 put at approximately $0.85.

Sell price is left to your own judgment.

Abercrombie & Fitch Co. (NYSE:ANF) is slated to release third-quarter fiscal 2016 results on Nov 18. The average analyst expectation is that ANF will post earnings per share (EPS) of 22 cents in the third quarter, compared to 48 cents in the same quarter a year ago. Full-year EPS is slated at a paltry 47 cents, compared to $1.12 last year.

This specialty retailer of premium, high-quality casual apparel for men, women, and kids, delivered negative surprises of 8.7% and 18% in the second and first quarters of fiscal 2016, respectively.

Analysts at FBR & Co lowered their Q3 2017 earnings estimates for Abercrombie & Fitch Co. in a report released on Tuesday. FBR & Co analyst S. Anderson now expects that the brokerage will earn $0.20 per share for the quarter, down from their prior forecast of $0.21. FBR & Co currently has a “Underperform” rating and a $14.00 target price on the stock. FBR & Co also issued estimates for Abercrombie & Fitch Co.’s Q4 2017 earnings at $0.99 EPS, FY2017 earnings at $0.36 EPS, FY2018 earnings at $0.66 EPS and FY2019 earnings at $0.87 EPS.

Abercrombie has been posting dismal results for a while now, as the company has been facing soft traffic trends in its U.S. flagship and tourist stores. Also, the company remains prone to adverse currency movements, as over a quarter of its total revenue comes from overseas operations.

Management had warned of challenging comparable-store sales performance in the second half of fiscal 2016, anticipating the aforementioned hurdles to linger. Moreover, the Zacks Consensus Estimate for fiscal 2016 and fiscal 2017 has been witnessing a slight downtrend in the past seven days.

Why ANF?

Abercrombie & Fitch's stock performance this year has been dismal, amid a retailing resurgence and an overall bullish market. ANF's shares have plunged about 40% year to date, compared to an YTD gain of 5.2% for the SPDR S&P Retail ETF and a gain of more than 6% for the S&P 500.

Fickle young fashionistas, once enamored of Abercrombie's preppy clothing style, are abandoning the company's premium-priced offerings for "grungier," hipper and cheaper fare at up-and-coming stores such as Forever 21, Zara and H&M.

Not helping matters is fierce discount competition from Wal-Mart and e-commerce giant Amazon, where youngsters saddled with crippling student debt can find discount clothing, without the expensive Ivy League pretensions that once served Abercrombie so well.

Based in New Albany, Ohio, Abercrombie & Fitch operates 754 stores in the U.S. and 178 stores in Canada, Europe, Asia and the Middle East. As sales plummeted in recent years, the company jettisoned the eponymous logo that once made its clothing a coveted brand.

At the same time, the company sharply cut prices, but its clothes still cost more than those of popular discount operators such as Ross Stores. Ross has thrived and stolen ANF customers by forging an efficient supply chain that produces fashionable clothes at deeply discounted prices.

Analysts Opinions

 Abercrombie & Fitch Co. was downgraded by research analysts at Wolfe Research from an “outperform” rating to a “market perform” rating in a report released on Monday.

Seven analysts have rated the stock with a sell rating, seventeen have issued a hold rating and four have issued a buy rating to the company’s stock. The company currently has a consensus rating of “Hold” and a consensus price target of $21.85.

Abercrombie & Fitch Co. has a 52-week low of $14.00 and a 52-week high of $32.83. The company has a market cap of $1.10 billion, a price-to-earnings ratio of 23.993 and a beta of 1.31. The stock’s 50 day moving average price is $15.54 and its 200 day moving average price is $19.34.


Option Trade – Foot Locker, Inc. (NYSE:FL) Calls

Thursday, November 17, 2016

**OPTION TRADE: Buy the FL DEC 16 2016 75.000 call at approximately $1.00.

Sell price is left to your own judgment.

Foot Locker, Inc. (NYSE:FL), a retailer of shoes and apparel, is scheduled to be releasing its earnings data before the market opens on Friday, November 18th. Analysts expect Foot Locker to post earnings of $1.10 per share for the quarter.

Analysts at Wedbush issued their Q3 2017 earnings per share (EPS) estimates for shares of Foot Locker in a research note issued on Tuesday. Wedbush analyst C. Svezia expects that the firm will post earnings of $1.10 per share for the quarter. Wedbush has a “Outperform” rating and a $80.00 price objective on the stock. Wedbush also issued estimates for Foot Locker’s Q4 2017 earnings at $1.32 EPS, FY2017 earnings at $4.75 EPS and FY2018 earnings at $5.25 EPS.

Clearly, recent earnings estimate revisions suggest that good things are ahead for Foot Locker, and that a beat might be in the cards for the upcoming report. After all, analysts raising estimates right before earnings—with the most up-to-date information possible—is a pretty good indicator of some favorable trends underneath the surface for FL in this report.

Why Footlocker?

Foot Locker’s stellar performance is backed by effective implementation of its operational and financial initiatives. It is believed that the company is likely to gain by persistently utilizing opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with its vendors, store banner.com business, store refurbishment and enhancement of assortments.

Further, the company is focusing on augmenting its eCommerce platform, growing direct-to-consumer operations, margin expansion and tapping underpenetrated markets. However, a competitive retail landscape, fashion obsolescence and foreign currency headwinds remain concerns.

Analysts Opinions

Foot Locker had its “buy” rating reaffirmed by analysts at B. Riley on Nov. 14. They now have a $77.00 price target on the stock.

Also, on the same day, Foot Locker had its “buy” rating reaffirmed by analysts at Deutsche Bank AG. They now have a $75.00 price target on the stock, down previously from $76.00.

And on Nov. 12 Foot Locker was given a new $79.00 price target on by analysts at Canaccord Genuity. They now have a “buy” rating on the stock.

One investment analyst has rated the stock with a sell rating, five have given a hold rating, sixteen have assigned a buy rating and two have issued a strong buy rating to the stock. The stock presently has an average rating of “Buy” and an average target price of $73.46.

Foot Locker Inc. has a market capitalization of $9.34 billion, a price-to-earnings ratio of 17.43 and a beta of 0.59. The firm has a 50-day moving average price of $67.96 and a 200 day moving average price of $61.66. Foot Locker Inc. has a 12 month low of $50.90 and a 12 month high of $72.25.


Option Trade – Gap Inc (NYSE:GPS) Calls

Wednesday, November 16, 2016

**OPTION TRADE: Buy the GPS DEC 16 2016 30.000 call at approximately $1.30.

Sell price is left to your own judgment.

Gap Inc (NYSE:GPS) will post its quarterly earnings results on Thursday, November 17th. Analysts expect Gap to post earnings of $0.60 per share for the quarter. Gap has set its FY17 guidance at $1.87-1.92 EPS.

For current year earnings, the consensus has gone up by 3.6% in the past 30 days, thanks to 14 upward revisions in the past one month compared to no downward revisions.

Gap last released its earnings results on Thursday, August 18th. The apparel retailer reported $0.60 earnings per share for the quarter, beating the consensus estimate of $0.59 by $0.01. The business had revenue of $3.85 billion for the quarter, compared to the consensus estimate of $3.79 billion. Gap had a return on equity of 33.26% and a net margin of 4.60%.

Last quarter, the company delivered a positive earnings surprise of 1.7%, prior to which it posted in-line earnings for five straight quarters.

Gap recently came out with sales and comparable store sales (comps) results for the month of October and the third quarter of fiscal 2016. While comps dipped year over year for both periods, bearing the brunt of the campus fire at Fishkill distribution center and persistent softness across its Banana Republic and namesake brands, results largely gained from strong Old Navy performance. The Old Navy brand spelled out positive results for both periods, driven by favorable consumer response for its product assortments. Also, management stated that the merchandise margins for October were significantly higher than expected. This more than mitigated the negatives arising from the distribution center fire, mainly on estimated earnings due to lost sales and higher logistics costs.

Notably, management's efforts to revive the Old Navy brand have started to pay off, thus keeping pace with the company's recently chalked-out strategic plan that advocates positioning it to match the accelerated pace of change in the apparel industry. The company intends to escalate its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. The company remains committed to better position itself for long-term growth by setting its priorities right and channelizing its resources accordingly.

Following its third quarter and October sales results, management issued favorable earnings guidance for the third quarter, where it expects to report earnings per share (GAAP) of 50−51 cents. Excluding the effects of its store closures and streamlining initiatives, the company anticipates adjusted earnings per share in the range of 59−60 cents. While troubles like fashion misses, currency headwinds, constant weakness across most brands and the campus fire are looming over Gap, we believe its calculated plan provides the needed boost to turn its operating performance around. So, let's see what the company has in store for its investors with the upcoming results.

Gap has a 12 month low of $17.00 and a 12 month high of $30.49. The company has a 50 day moving average price of $25.49 and a 200-day moving average price of $23.13. The company has a market cap of $11.89 billion, a PE ratio of 16.81 and a beta of 1.06.


Option Trade – Wal-Mart Stores, Inc. (NYSE:WMT) Puts

Wednesday, November 16, 2016

**OPTION TRADE: Buy the WMT DEC 16 2016 70.000 put at approximately $1.25.

Sell price is left to your own judgment.

Wal-Mart Stores, Inc. (NYSE:WMT) will issue its Q317 quarterly earnings data before the market opens on Thursday, November 17th. Analysts expect the company to announce earnings of $0.96 per share and revenue of $118.61 billion for the quarter. Wal-Mart Stores has set its Q3 guidance at $0.90-1.00 EPS.

Management has dampened spirits a bit, when it announced flat earnings growth next year, at its recent investors meeting. The stock dropped over 3% as a result. There is no doubt that the company's heavy investing (mainly in the e-commerce channel) is going to weigh on earnings growth going forward. Furthermore, for the most part, e-commerce is uncharted territory for the retail giant, and due to slowing growth, it has had to spend aggressively this year in order to fend off strong competition.

Companies like Amazon.com continue to grow top line despite investing aggressively in its business. Sooner or later, Walmart will have to show the same growth trends to investors in order to keep them interested.

Also, store openings in China have also slowed but Walmart seems to be ultra-focused on its e-commerce division in this market.

Operating margins, which dropped to 4.7% last quarter, is very poor from a historical perspective. In fact, operating margins have been heading south since 2012, and incidentally, the stock price is still trading below its 2012 highs.

Three investment analysts have rated the stock with a sell rating, seventeen have issued a hold rating, nine have issued a buy rating and one has issued a strong buy rating to the stock. The company has a consensus rating of “Hold” and an average target price of $75.04.

Wal-Mart Stores Inc. has a market cap of $220.92 billion, a P/E ratio of 15.38 and a beta of 0.10. The stock’s 50 day moving average is $69.88 and its 200-day moving average is $71.04. Wal-Mart Stores Inc. has a 12-month low of $56.36 and a 12-month high of $75.19.


Option Trade – salesforce.com, inc. (NYSE:CRM) Calls

Wednesday, November 16, 2016

 **OPTION TRADE: Buy the CRM DEC 16 2016 80.000 call at approximately $1.10.

Sell price is left to your own judgment.

Cloud software provider, salesforce.com, inc. (NYSE:CRM), reports fiscal Q3 earnings on Thursday after the close, and is expected to report earnings per share minus items of 21 cents. Revenue is expected to rise nearly 24% to $2.12 billion. Last quarter, the company posted a positive earnings surprise of 40%.

Overall, the third-quarter earnings report is expected to be an improvement over recent quarters.

"We think Salesforce should be able to comfortably beat a low bar," Ross Macmillan, an analyst at RBC Capital Markets, said in a research report.

Alex Zukin, a Piper Jaffray analyst, has an overweight rating on Salesforce.com stock.

"Checks suggest a rebound quarter with multiple large deals across geographies and particular success in the financial services vertical," he said in a report.

"As we continue to do our research in the ecosystem, we're more confident that the weakness in Q2 was a short-term issue and that the company is rebounding strongly here in Q3 and is set up well for the fourth quarter," Marshall Senk, an analyst at Rosenblatt Securities, said in a report.

Last quarter, Salesforce witnessed significant year-over-year growth in both the top and the bottom line. The improvement has been primarily attributed to the rapid adoption of the company's cloud-based solutions. Also, higher demand for Salesforce ExactTarget Marketing Cloud platform, part of the Salesforce1 Customer Platform, contributed to the improvement. It is expected that the trend will continue in the third quarter as well.

A higher number of deal wins and geographical contributions should also boost results in the to-be-reported quarter. Overall, the company's diverse cloud offerings and considerable spending on digital marketing remain growth catalysts. Moreover, strategic acquisitions and resultant synergies are expected to drive long-term growth.

Considering increased customer adoption and satisfactory performances, market research firm Gartner acknowledged salesforce as the leading social CRM solution provider. It is believed that the rapid adoption of the company's platforms indicates solid growth opportunities in the expanding cloud computing space, which will, in turn, boost results in the to-be reported quarter.

Two research analysts have rated the stock with a sell rating, three have assigned a hold rating and forty-five have given a buy rating to the company’s stock. The company presently has a consensus rating of “Buy” and an average price target of $92.13.

salesforce.com Inc has a 50-day moving average price of $73.17 and a 200 day moving average price of $77.56. The company has a market capitalization of $49.84 billion, a PE ratio of 224.57 and a beta of 1.55. Salesforce.com Inc. has a 12-month low of $52.60 and a 12-month high of $84.48.


Option Trade – The Home Depot, Inc. (NYSE:HD) Calls

Monday, November 14, 2016

**OPTION TRADE: Buy the HD DEC 16 2016 135.000 call at approximately $1.20.

Sell price is left to your own judgment.

The Home Depot, Inc. (NYSE:HD), the leader in the home-improvement retail space, is scheduled to report its fiscal third-quarter results tomorrow, before the market starts. The analysts on average predict that its earnings per share will have grown by $0.22 from a year ago to $1.58 per share. The $23.07 billion in expected revenue would be more than a 5 percent gain. This Atlanta-based specialty retailer matched the EPS estimate in the prior quarter, after beating expectations in earlier quarters.

Home Depot looks to be well-positioned to weather changes in retail and continue delivering strong performance for investors. In addition to building up its in-home installation services as a buffer against the threat of competition from Amazon and other rivals, Home Depot is making strides in creating integration between its internet-based and bricks-and-mortar businesses.

The company's last quarterly report saw it grow online sales 19% year over year, and roughly half of online orders are picked up by customers at a store location. By converting online orders to in-store traffic, Home Depot creates the opportunity to generate additional sales, and that type of synergy points to an ability to thrive even as online rivals increasingly target the space.

Opting to invest in store quality rather than growing store count has been one of the company's smartest moves in recent years and has been a major factor in outperforming the earnings growth of rival Lowe's.

Analysts are confident before home depot’s 3q16 earnings -- according to a Bloomberg survey of 31 analysts, 71% gave Home Depot “buy” recommendations and 29% gave it “hold” recommendations. None of the analysts gave it a “sell” recommendation. Home Depot’s share price moves in tandem with analysts’ recommendations.

The Home Depot Inc. has a 50 day moving average price of $125.71 and a 200 day moving average price of $130.93. The company has a market cap of $160.44 billion, a price-to-earnings ratio of 21.98 and a beta of 1.05. The Home Depot Inc. has a 12 month low of $109.62 and a 12 month high of $139.00.


Advance Auto Parts, Inc. (NYSE:AAP) Calls

Monday, November 14, 2016

 **OPTION TRADE: Buy the AAP DEC 18 2016 155.000 call at approximately $1.55.

Sell price is left to your own judgment.

Advance Auto Parts, Inc. (NYSE:AAP), a provider of automotive aftermarket parts in North America, serving do-it-for-me (commercial) and do-it-yourself (DIY), customers, as well as independently owned operators, is expected to report third-quarter fiscal 2016 results after the market closes today, Nov 14. The consensus calls for earnings of $1.74 per share, down from $1.95 during the same period last year. In the last quarter, the company posted a negative earnings surprise of 10.8%.

The stock has been trending strongly lower since mid-summer, but shares have recently started to rebound, and are now close to break-even for the year. The consensus calls for $1.74, but the street’s whisper number is slightly higher at $1.76.

AAP did participate in the post-election rally, so it is clear that Wall Street believes the sector will benefit under a Trump presidency.

Why Advance Auto Parts?

Advance Auto Parts drives profits through its relentless focus on store expansion. During fiscal 2015, the company opened 121 stores. In the first half of fiscal 2016, the company opened 34 stores. The increase in store count ensures higher availability of parts to customers, thereby leading to higher sales volume.

Hedge funds have also taken a positive stance on AAP. Starboard held 2.76 million shares worth $445.29 million at the end of June, after having increased the stake by 61% during the second quarter.

Overall, 51 funds tracked shares of Advance Auto Parts, Inc. at the end of June, up by 11% over the quarter. Starboard held the largest stake, followed by Citadel Investment Group which amassed $229.9 million worth of shares. Moreover, Fir Tree, Balyasny Asset Management, and Marshall Wace LLP were also bullish on Advance Auto Parts, Inc..

Analyst Input

Argus reaffirmed a “buy” rating and issued a $185.00 target price on shares of Advance Auto Parts in a research note on Wednesday, August 31st.

Credit Suisse Group AG reissued an “outperform” rating and set a $171.00 price objective on shares of Advance Auto Parts in a research report on Sunday, October 23rd.

Four analysts have rated the stock with a sell rating, eight have issued a hold rating and eleven have assigned a buy rating to the company’s stock. The stock has a consensus rating of “Hold” and an average price target of $166.91.

Advance Auto Parts has a market capitalization of $10.67 billion, a price-to-earnings ratio of 23.42 and a beta of 1.04. The stock’s 50-day moving average is $144.28 and its 200-day moving average is $154.00. Advance Auto Parts has a 52 week low of $131.59 and a 52 week high of $172.87.



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