“Cut-to-the-Chase” Recommendations  - Week Beginning November 28, 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 – Five Below Inc (NASDAQ:FIVE) Calls

Thursday, December 01

**OPTION TRADE: Buy the FIVE DEC 16 2016 43.000 call at approximately $0.55. Sell price is left to your own judgment.

Five Below Inc. (NASDAQ:FIVE), a specialty retailer offering a range of merchandise for teen and pre-teen customers, is due to report its Earnings today, Dec 1st, after the market closes. The estimated EPS for the current quarter is said to be $0.1. Following Earnings result, share price were UP 10 times out of last 17 Qtrs. The stock has reduced about -9% since it reported its last earnings.

Five Below Inc has seen 22% of its valuation wiped out since August. The company beat earnings expectations in late-August, and market sentiment has been mostly higher. Therefore, it is hard to figure why FIVE stock has fallen so abruptly.

Despite these losses, BNL Finance reiterates its “Strong Buy” rating on FIVE stock. BNL Finance initiated coverage on Five Below at $33.10 with a Strong Buy rating.

Comparable sales growth is not all that important for Five Below because its stores are so large. Yes, we want to see same-store sales growth, but store count growth is far more important as a means to drive growth.

When you look at Dollar Tree and Dollar General with 1,000s of stores, you realize that Five Below still has a lot of upside with just 491 stores. This is a company that wants 1,500 stores, but it is  believed that the final store count number will be far higher.

Regardless, Five Below’s IPO gave the company too high of a valuation. That’s why FIVE stock has underperformed the market. However, Five Below has continued to grow and now trades at a fair valuation of 22x forward earnings. We believe Five Below stock gains should be more consistent in the future.      

Five Below‘s stock had its “equal weight” rating reaffirmed by investment analysts at Barclays PLC in a note issued to investors on Tuesday. They presently have a $42.00 target price on the stock. Barclays PLC’s price objective would indicate a potential upside of 5.29% from the stock’s current price.

One investment analyst has rated the stock with a sell rating, six have given a hold rating and thirteen have issued a buy rating to the stock. The stock has an average rating of “Buy” and a consensus price target of $47.81.

Five Below has a 1-year low of $26.97 and a 1-year high of $52.70. The stock has a market cap of $2.19 billion, a price-to-earnings ratio of 35.02 and a beta of 1.02. The stock has a 50 day moving average of $38.51 and a 200 day moving average of $43.24.


Option Trade – Ambarella Inc (NASDAQ:AMBA) Calls

Thursday, December 01, 2016

**OPTION TRADE: Buy the AMBA DEC 16 2016 65.000 call at approximately $1.55. Sell price is left to your own judgment.

Ambarella Inc (NASDAQ:AMBA), a video-processing chip specialist, AMBA is set to report third-quarter fiscal 2017 results today, Dec 1, after the market closes. Last quarter, the company posted a positive earnings surprise of 56.25%. Notably, the stock has outperformed the Consensus Estimate in the preceding four quarters with an average positive earnings surprise of 62.75%.

AMBA revenues are expected to nudge higher and grow by 4.8% to $97.7 million compared to 2015’s sales of $93.2 million. Sequentially, Ambarella is set to show a huge improvement over last quarter’s $65.1 million. That sounds like good news.

The better news for AMBA stock holders is revenues are set to grow to their highest levels in Ambarella’s history as a publicly traded company.

Ambarella has established a strong pattern of beating Street profit views. In fact, over the past couple years; the company has topped estimates 100% of the time and typically by a wide margin of 15% to 20%.

Ambarella develops chips for the high-definition (HD) video capture market and is currently witnessing increasing demand for its products.

Ambarella has started working with GoPro. The chipmaker's technology is used in GoPro's first person point-of-view cameras, allowing users to take videos from snowboards, surfboards, or car dashboards.

Also, on Wednesday, GoPro issed a press release Opens a New Window indicating its new HERO5 cameras have experienced "solid" demand so far this holiday season, including a 35% year-over-year increase in camera unit sales on Black Friday alone. On top of that, Ambarella is enjoying relative strength in each of its other business segments, and touted new design wins Opens a New Window across all markets including drones, home monitoring, virtual reality, and new wearable devices.

The company has also partnered with Alphabet Inc. (GOOGL) for its "Helpouts" services. These services help users with a range of jobs from fixing their cars to taking art lessons, through a video camera connected to Wi-Fi or Bluetooth network.

The company had acquired VisLab S.r.l. in an all-cash deal worth $30 million. By integrating VisLab's computer vision and intelligent control systems with its video processing technology, Ambarella will be able to develop high performance products and target its core markets - automotive, IP security, wearable and flying cameras.

Also, the VisLab takeover will boost Ambarella's product portfolio and help it to compete with Israel-based Mobileye N.V. MBLY , currently the world's leading provider of driver assistance technology.9C229C

Ambarella Inc. had its target price raised by equities researchers at Canaccord Genuity from $86.00 to $87.00 in a research report issued to clients and investors on Wednesday. The firm presently has a “buy” rating on the stock. Canaccord Genuity’s target price suggests a potential upside of 36.12% from the stock’s previous close. 

Six equities research analysts have rated the stock with a hold rating, ten have issued a buy rating and two have given a strong buy rating to the stock. The company currently has an average rating of “Buy” and a consensus price target of $70.03.

After more than doubling from its technical low, AMBA stock has put together a corrective move of 28% from October into early November. The constructive price activity also established a successful test of 200-day simple moving average support.

Ambarella has a 52-week low of $33.39 and a 52-week high of $74.95. The company’s 50-day moving average is $68.86 and its 200 day moving average is $53.99. The company has a market cap of $2.09 billion, a PE ratio of 48.12 and a beta of 1.50.


Option Trade – Kroger Co (NYSE:KR) Calls

Tuesday, November 29, 2016

**OPTION TRADE: Buy the KR DEC 16 2016 35.000 call at approximately $0.55. Sell price is left to your own judgment.

Kroger Co (NYSE:KR), an operator of retail food and drug stores, multi-department stores, jewelry stores and convenience stores across the United States, ) is expected to report its third-quarter results on December 1. The consensus calls for earnings of $0.42 per share, on revenue of $26.23 billion. During the same period last year Kroger earned $0.43 on sales of $25.1 billion.

A dominant position among the nation’s largest grocery retailers enables Kroger to sustain growth, expand store base and boost market share. Further, the company remains well positioned to deliver higher earnings, primarily through strong identical supermarket sales growth. It is believed that there are huge opportunities to augment identical supermarket sales, alleviate gross margin pressure and improve operating margin.

To maintain high rates of profitability, Kroger is cutting costs. Fortunately, it has the financial flexibility to accomplish this. The company has been reducing capital expenditures by $500 million per year.

This allowed Kroger to generate 13.95% return on invested capital last quarter. Total sales, excluding fuel and acquisitions, increased 2.9% in the second quarter. Despite the deflationary grocery environment, earnings per share increased 4.7% over the first half of 2016.

Why Kroger?

Going forward, Kroger should continue to grow sales and earnings-per-share. It has initiated a new policy called the "Customer First Strategy" which will be a key to its future growth.

Despite heightened competition in the grocery industry, Kroger's growth prospects are still quite good. The company is focusing on new product categories and acquisitions to fuel future growth.

First, Kroger management is paying close attention to the changing consumer landscape. Supermarket shoppers are demanding higher-quality produce. Organics and natural foods are growing at a high rate.

Kroger has invested significantly to boost its organics departments. For example, earlier this year Kroger purchased a stake in Lucky's Market, a specialty natural and organics store. Lucky's Market has more than 20 locations.

As consumer preferences evolve, consumers are also becoming more loyal to those chains that effectively respond to their desires.

Another way Kroger is responding to consumer demands is by investing in new digital capabilities. Kroger merged with Harris Tweeter in 2014.

The merger provided Kroger with Harris Tweeter's ClickList online ordering platform. Kroger has expanded ClickList and ExpressLane online ordering to 400 locations.

Kroger has also invested in an in-store digital platform called Quevision. This has helped reduce wait times and led to significantly lower labor costs for the company.

Another way Kroger plans to grow is through acquisitions. In 2016, Kroger acquired Roundy's. Roundy's owns several banners, including Pick 'n Save as well as Mariano's banner, for $866 million.

Mariano's in particular is a hidden gem for the company. It is highly popular in the Midwest, particularly among the premium specialty category.

Kroger’s long-term earnings per share growth rate target of 8% to 11% seem achievable.

Kroger’s shares started rallying the day after the election. They rose as much as 13 percent in the first post-election week and are still up 9 percent since Election Day, fueled by expectations that a Donald Trump presidency will lead to inflation.

Analyst Input

Analysts expect Kroger to post earnings per share of 41 cents when it reports third-quarter results on Thursday morning. That would be down from 43 cents in the year-ago quarter.

The Kroger Co. stock is presently standing at about $33.88 and lots of equity research firms seem to have a target price set on the stock. The median one-year price target of 22 analysts covering the company is $38.28, which suggests the stock could still rise over 10 percent. The highest analyst price target is $44.00, which implies a rally of 70 percent. And a quick view of analyst notes show that 6 are rating the stock a buy while 9 rate KR a strong buy. There are 7 equity research firms advocating a Hold and 1 consider it Sell.

Kroger was upgraded by research analysts at Vetr from a “sell” rating to a “hold” rating in a research report issued recently. The firm currently has a $32.92 price objective on the stock.

Also, Kroger‘s stock had its “buy” rating reissued by analysts at Guggenheim in a research report issued to clients and investors on Monday. They currently have a $40.00 target price on the stock. Guggenheim’s target price suggests a potential upside of 18.06% from the company’s current price.

The stock is starting to bounce after trending lower for the first nine months of the year, but remains down 19.7% on the year.

Kroger has a market cap of $31.79 billion, a PE ratio of 15.963 and a beta of 0.74. Kroger has a 12 month low of $28.71 and a 12 month high of $42.75. The company’s 50-day moving average price is $31.79 and its 200-day moving average price is $33.37.


Option Trade – American Eagle Outfitters (NYSE:AEO) Calls

Monday, November 28, 2016

**OPTION TRADE: Buy the AEO DEC 16 2016 19.000 call at approximately $0.60. Sell price is left to your own judgment.

American Eagle Outfitters (NYSE:AEO), a specialty retailer, operating over 1,000 retail stores and online at ae.com and aerie.com in the United States and internationally, is scheduled to report third-quarter fiscal 2016 results on Nov 30. Analysts expect American Eagle Outfitters to post earnings of $0.41 per share and revenue of $941.85 million for the quarter.

Last quarter, this specialty retailer of casual apparel, accessories and footwear posted a positive earnings surprise of 9.5%.

American Eagle has been gaining from its constant efforts to enhance brands via innovations, through technological advancements as well as its commitment toward enriching consumer experience. We believe that the company's focus on enhancing consumer experience by providing top-quality products is likely to position its brands well in the evolving retail space.

Zacks Investment Research raised American Eagle Outfitters from a “hold” rating to a “buy” rating and set a $20.00 price target on the stock in a research report recently.

Two research analysts have rated the stock with a sell rating, ten have given a hold rating and thirteen have given a buy rating to the company. American Eagle Outfitters presently has an average rating of “Hold” and an average target price of $19.63.

American Eagle Outfitters Inc. has a 50 day moving average price of $17.44 and a 200 day moving average price of $17.07. The company has a market capitalization of $3.33 billion, a PE ratio of 14.59 and a beta of 0.86. American Eagle Outfitters Inc. has a one year low of $12.78 and a one year high of $19.55.



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