Option Trade 
Advance Auto Parts, Inc. (NYSE:AAP) Calls 
Monday, November 14, 2016

** OPTION TRADE: Buy the AAP JAN 20 2017 155.000 call at approximately $3.10. Place a pre-determined sell at $6.00.

 Note: No protective stop losses added -- but if you wish to do so make it $1.25.        

by Ian Harvey

Monday, November 14, 2016

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%.

Equities researchers at Wedbush dropped their Q1 2017 earnings per share (EPS) estimates for Advance Auto Parts in a research report issued to clients and investors on Thursday. Wedbush analyst S. Basham now anticipates that the brokerage will post earnings of $2.48 per share for the quarter, down from their prior forecast of $2.72. Wedbush currently has a “Outperform” rating and a $175.00 target price on the stock. Wedbush also issued estimates for Advance Auto Parts’ Q2 2017 earnings at $2.14 EPS, Q3 2017 earnings at $1.86 EPS, Q4 2017 earnings at $1.20 EPS, FY2017 earnings at $7.71 EPS and FY2018 earnings at $9.37 EPS.

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.

The stock is down 3.9% on the year.

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.

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.
  • BTIG Research reissued a “sell” rating and set a $120.00 price objective on shares of Advance Auto Parts in a research report on Wednesday, August 17th.
  • Finally, Deutsche Bank AG reduced their price objective on shares of Advance Auto Parts from $180.00 to $175.00 and set a “buy” rating on the stock in a research report on Wednesday, August 17th.

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.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the AAP JAN 20 2017 155.000 call at approximately $3.10. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.25.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.

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