“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, January 27, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade - Doubling-Down Zynga Inc (NASDAQ: ZNGA) Calls

Friday, January 31, 2020

** OPTION TRADE: Buy ZNGA JUN 18 8.000 CALL at approximately $0.12.

Maintain the high pre-determined sell at $1.00. This can be adjusted accordingly.

On Friday, January 17, 2020, we recommended a call option trade on mobile game maker Zynga Inc (NASDAQ: ZNGA). At this stage shares have pulled-back a bit, and our trade has halved. However, this may be another great buying opportunity as the pullback or correction for ZNGA may be over.

In the daily bar chart of ZNGA prices have pulled back this month to break below the rising 50-day moving average line and test the rising 200-day moving average line. Prices broke the support around $6.00 but have so far quickly rebounded to the upside.

The market expects Zynga to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended December 2019.

The stock is expected to move higher if expectations are met in the upcoming earnings report, which is expected to be released on February 5.

This maker of "FarmVille" and other online games is expected to post quarterly earnings of $0.06 per share in its upcoming report, which represents a year-over-year change of +200%.

Revenues are expected to be $417.57 million, up 56.2% from the year-ago quarter.

The consensus EPS estimate for the quarter has been revised 6.25% higher over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Positive Thoughts.....

Zynga is best known for being the force behind wildly popular games such as “Words With Friends”, “Empires & Puzzles” and “Merge Dragon”. After posting an impressive 70% climb in 2019, there appears that the video game developer still has more fuel left in the tank.

And, according to SunTrust Robinson’s Matthew Thornton, he agrees. In his initiation note, the analyst points out that the already large gaming market, which was worth about $83 billion in 2019, is still expanding, with a 5-year 2018-2023 CAGR of 9.9%. He tells investors the companies that can prosper in this competitive and fragmented environment will be those with platform-exposure to the market, publishers with unique franchises or IP, network scale and ability to fund and execute robust live services, pipeline development and M&A. Based on this, Thornton has high hopes for ZNGA.

“ZNGA provides pure-play exposure to the large and fast growing global mobile gaming market with a growing (31% pro forma in 3Q19, driven by Merge Dragons and Empires & Puzzles) and diversified existing game portfolio and highly experienced management team and Board. In addition to a healthy existing portfolio, ZNGA has a strong pipeline (at least 7 games, including FarmVille, Harry Potter, Star Wars, Game of Thrones, and others) as well as a strong balance sheet and acquisition track record to augment organic growth with M&A in what is a highly fragmented market,” he wrote.

Taking all of this into consideration, the analyst puts the 2-year 2019-2021 revenue and EBITDA CAGR at 13% and 18%, respectively. Not to mention the company is also expected to surpass consensus estimates over the next few years.

In line with his bullish thesis, Thornton started his ZNGA coverage with a Buy recommendation.

Looking at the consensus breakdown, 6 Buys, 1 Hold and 1 Sell published in the last three months add up to a Moderate Buy.


Option Trade – Veeva Systems Inc. (NYSE:VEEV) Calls

Tuesday, January 28, 2020

** OPTION TRADE: Buy the VEEV MAR 20 2020 150.000 CALLS at approximately $4.60.

Place a high pre-determined sell at $9.20.

Include a protective stop loss of $1.85.

Cloud solutions provider Veeva Systems Inc. (NYSE:VEEV), a growing mid cap company within the Healthcare sector, gained 57.5% last year; and in the past three years has  provided a total return of 246%, as well as 863% in just a bit over five years.

 Veeva has been a solid growth play in the life sciences industry. It continues to impress investors with robust growth across its business segments last year, particularly with Veeva Commercial Cloud and Veeva Vault. 

On average over the last three years, Veeva Systems Inc. has grown earnings per share (EPS) by 44% each year (using a line of best fit). Its revenue is up 26% over last year.

The company has improved itself over the last few years due to the combination of strong revenue growth with medium-term earnings per share improvement.

But, despite the run, Veeva stock has slipped 15% in the last six months. This might offer a better buying opportunity as VEEV rests just below its 200-day moving average—where it has rarely stayed for long over the last several years.

About Veeva.....

Veeva Systems offers cloud-based solutions for the pharmaceutical and life sciences industries. Veeva’s software-as-a-service model helps deliver industry-specific tools for customer relationship management, content management, and many other enterprise applications.

Why Veeva?…..

Today, Veeva serves a vital role in the entire life sciences sector. Despite its huge potential, the drug industry is filled with time-consuming and expensive headaches; and only 9.6% of drugs scientists discover ever get approved for sale.

With such daunting data, industry leaders are on the lookout for the kinds of solutions that Veeva provides. They can really drive down the cost of discovery and shorten time to market.

Veeva offers tools to help clients manage the entire clinical suite. It covers everything from collecting and verifying data to making sure clients are ready for any government inspections.

That fact alone helps explain why more than 600 firms, many top-tier firms, are now Veeva clients.

Earnings…..

Veeva topped Q3 2020 estimates in late November. The technology company reported $0.60 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.41 by $0.19. Veeva Systems had a return on equity of 17.56% and a net margin of 29.86%. The company had revenue of $280.90 million during the quarter, compared to analysts’ expectations of $274.81 million.

Veeva stock's revenue climbed 25% in the company's fiscal third quarter, with a major proportion of its revenue coming from subscriptions. Subscription services totaled $227 million during Q3 and made up 81% of the company's top line, and that's up from 79% in the prior-year quarter.

The company's commercial cloud revenue, which includes CRM, makes up a little less than half, 48%, of Veeva's top line. Veeva Vault, a suite of apps that focuses on data management, had a slight majority this past quarter, but that wasn't the case a year ago when commercial cloud sales had the upper hand with 52% of revenue.

The current estimates call for its full-year fiscal 2020 sales to surge 26.5% to $1.09 billion, which is projected to lift its adjusted earnings by 33% to $2.17. VEEV’s fiscal 2021 revenue is then projected to jump another 27.3% higher to hit $1.39 billion, with its EPS figure set to pop 17% above our current-year estimate.

Veeva is expected to report its next quarterly earnings report on Tuesday, February 25th. Wall Street analysts expect Veeva to report $0.52 earnings per share for the current fiscal quarter. Veeva Systems posted earnings per share of $0.45 in the same quarter last year, which indicates a positive year-over-year growth rate of 15.6%.

Influencing Factors…..

The growth of Veeva has been very successful. By 2016, the firm’s sales base had reached $400 million. By next year, it is expected that sales will approach $1.3 billion.

Veeva is just now pushing into the even bigger industrial market, which is twice the size of its core life sciences sector which will provide plenty of upside.

On Dec 4, 2019, in a bid to offer the industry greater flexibility and a choice to leverage their customer data without restrictions, Veeva Systems introduced Veeva OpenData Explorer. The company also unveiled open API making it easier to integrate customer data with third-party applications and services.

On Nov 21, Veeva announced that Bionorica SE, a fast-growing German manufacturer of herbal medicines, has selected multichannel Veeva CRM to streamline business processes and improve customer interactions globally.

With significant technical capabilities, Veeva is tech giant salesforce.com's "preferred worldwide partner for the pharmaceutical and biotech industry." The two companies have a partnership that extends into 2025, allowing Veeva to develop unique applications for the healthcare industry.

One of the applications that Veeva has developed with Salesforce is a customer relationship management (CRM) application designed with care providers in mind. Currently, more than 50 biopharmaceutical companies around the world use the software. It's a great growth opportunity for Veeva to reach even more healthcare providers, especially those that may not be all that familiar with CRM.

Additionally, the company just closed two acquisitions with Crossix and Physicians World. These additions will expand Veeva's capabilities in data analytics and events management software services for healthcare professionals. 

About Vault Study Startup.....

Accelerating study start-up is a top priority among leading life sciences companies. With this shift underway, an increasing number of organizations are selecting Vault Study Startup from Veeva Systems to improve clinical trial efficiency and speed time to site activation. Seven of the top 20 largest global pharmaceutical companies are adopting Vault Study Startup to bring together start-up activities and processes in a single, easy-to-use modern cloud application.

"Study start-up is the clinical area with the most potential to improve overall trial efficiency because of a heavy reliance on manual processes and legacy standalone systems," said Ashley Davidson, director of Veeva Vault Study Startup. "Customers are using Veeva Vault Study Startup to modernize their start-up operations and get trials up and running much faster."

Vault Study Startup is part of Veeva’s unified suite of clinical operations applications, enabling sponsors and CROs to seamlessly share information and documents across CTMS, eTMF, and study start-up for better collaboration and increased efficiency throughout the study lifecycle.

About Veeva Vault Payments.....

VEEV recently introduced Veeva Vault Payments, which is a new add-on application for Veeva Vault Clinical Trial Management System (CTMS). The new application is likely to provide a boost to Veeva Systems’ already robust product portfolio.

Also, Veeva Vault CTMS manages the payment and reimbursement process to clinical research sites. Vault Payments has been built to support complex clinical trials and streamline payments to sites while offering financial visibility to all study partners.

Veeva SiteVault Free.....

Additionally, the company also announced the availability of Veeva SiteVault Free – a free eRegulatory solution for clinical research sites. This solution is set to simplify regulatory compliance and accelerate study execution.

Analysts’ Opinions.....

Morgan Stanley upgraded shares of Veeva Systems from an equal weight rating to an overweight rating in a research report sent to investors on Monday, January 13th. They currently have $175.00 price target on the technology company’s stock, up from their previous price target of $160.00.

Several other equities analysts have recently commented on the company…..

  • Raymond James upgraded shares of Veeva Systems from a market perform rating to an outperform rating and set a $180.00 target price for the company in a research note on Thursday, September 26th.
  • Stephens reiterated a buy rating and issued a $185.00 target price on shares of Veeva Systems in a research note on Wednesday, November 27th.
  • SunTrust Banks set a $180.00 target price on shares of Veeva Systems and gave the company a buy rating in a research note on Friday, September 27th.
  • Finally, Barclays upped their price objective on shares of Veeva Systems from $165.00 to $176.00 and gave the stock an equal weight rating in a research report on Wednesday, November 27th.

One equities research analyst has rated the stock with a sell rating, seven have given a hold rating and eleven have issued a buy rating to the company. The stock has an average rating of Buy and an average price target of $174.28.

Summary.....                

Veeva has some exciting products that are showing terrific growth, and a partnership with Salesforce is bound to lead to even more potential down the road. The company may only be scratching the surface of its potential.

Veeva has a 50-day moving average price of $143.98 and a 200 day moving average price of $152.34. Veeva Systems Inc has a 52-week low of $104.68 and a 52-week high of $176.90. The company has a quick ratio of 5.40, a current ratio of 5.40 and a debt-to-equity ratio of 0.01. The firm has a market capitalization of $21.57 billion, a PE ratio of 73.03, and a PEG ratio of 4.04 and a beta of 1.17.