“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, February 11, 2019

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 – Intellia Therapeutics Inc (NASDAQ: NTLA) Calls

Wednesday, February 13, 2019

** OPTION TRADE: Buy the NTLA APR 18 2019 15.000 CALL at approximately $1.30. Place a pre-determined sell at $2.60.

Also include a protective stop loss of $0.55.

Last Thursday saw shares of U.S. gene therapy companies sink after drugs developed by two small firms failed to show promise in separate clinical trials, underscoring the challenges in an emerging, lucrative field of biotech.

Experimental treatments developed by Sangamo Therapeutics Inc and Solid BioSciences did not show enough clinical benefit to patients in early-stage trials testing the drugs to treat rare disorders.

"Investors may have expected some clinical efficacy data," Wedbush Securities analyst Liana Moussatos said. "Investors want to know if that level of enzyme is enough to show a clinical benefit and there was nothing about that in (Sangamo's) press release."

The data wasn't "inherently bad," and there could be additional data this year showing clinical benefit, Moussatos added.

However, shares of other companies using gene-editing technologies, CRISPR Therapeutics, fell between 7 and 10 percent in afternoon trading, and Intellia Therapeutics Inc (NASDAQ: NTLA) was caught in this downturn.

But, Friday saw the stock price begin to climb again thanks to BTIG setting a price target of $20, representing expected upside of 56.4% to Thursday's close. The shares continued to rally Monday and Tuesday. There is still a lot of room to run as yet.

And, analysts are mostly upbeat when it comes to NTLA. While four of seven maintained a "buy" or better rating at last night's close, the average 12-month price target of $39.79 is more than a 200% premium to current trading levels.

About Intellia Therapeutics…..

Intellia Therapeutics, Inc, a gene editing company, focuses on the development of therapeutics utilizing a biological tool known as the CRISPR/Cas9 system. The company develops in vivo programs focused on liver diseases, including transthyretin amyloidosis, alpha-1 antitrypsin deficiency, hepatitis B virus, and inborn errors of metabolism programs.

Future Earnings…..

Analysts expect Intellia Therapeutics to report earnings per share (EPS) of ($0.55) for the current fiscal quarter. Five analysts have provided estimates for Intellia Therapeutics’ earnings, with the lowest EPS estimate coming in at ($0.64) and the highest estimate coming in at ($0.34). Intellia Therapeutics posted earnings of ($0.61) per share in the same quarter last year, which indicates a positive year-over-year growth rate of 9.8%.

The company is expected to issue its next quarterly earnings results on Wednesday, March 13th.

Influencing Factors…..

The future of medicine is all about the personalization of medicine. That means doctors will be able to tailor treatments that fit your specific ailments. Not the general ailments of a large population of people.

Today, medicine is designed to treat the most common symptoms of a disease. So everyone with that same disease will be given the exact same treatment. But considering we all have different genetic makeups, this method is clearly not ideal.

That is where gene editing - the ability to edit a human's genome - comes into play.

Intellia Therapeutics doesn't get the same amount of press as its fellow gene-editing stocks. It is also one of the smallest, but its upside is just as huge as the other stocks to buy on the list.

Intellia stands out thanks to its proprietary lipid nanoparticle delivery (LNP) technology. This takes drug therapies directly to the genes that need to be edited and does it right there rather than having to extract the gene edit it in the lab. The process has proven to be safer and more effective than the alternatives.

Intellia has many irons in the fire as well as collaborations with two successful pharmaceutical companies, and it could have several therapies in FDA trials in the coming years. NTLA will continue their partnerships and show progress.

Intellia Therapeutics announced an expanded collaboration with Novartis in early December that landed the upstart a one-time $10 million payment. That will pad a balance sheet that sported $293 million in cash and cash equivalents at the end of the third quarter of 2018.

More importantly, the expanded collaboration will allow Intellia Therapeutics to use Novartis' lipid nanoparticle delivery technology for all genome editing applications in its pipeline.

Analysts Opinions

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

  • Leerink Swann initiated coverage on shares of Intellia Therapeutics in a research note on Tuesday, November 27th. They set an outperform rating and a $23.00 target price on the stock.
  • Credit Suisse Group initiated coverage on shares of Intellia Therapeutics in a research note on Monday, October 29th. They set a neutral rating and a $24.00 target price on the stock. BTIG Research assumed coverage on Intellia Therapeutics in a report on Thursday. They issued a “buy” rating and a $20.00 price target for the company.
  • BidaskClub raised Intellia Therapeutics from a “strong sell” rating to a “sell” rating in a report on Wednesday, January 2nd.
  • Oppenheimer restated a “hold” rating on shares of Intellia Therapeutics in a research report on Wednesday, October 31st.
  • Finally, restated a “hold” rating on shares of Intellia Therapeutics in a research report on Thursday, October 18th.

Shares of Intellia Therapeutics have been assigned a consensus recommendation of “Buy” from the thirteen brokerages that are covering the stock. One equities research analyst has rated the stock with a sell rating, seven have issued a hold rating and four have issued a buy rating on the company. The average 12 month price objective among brokerages that have covered the stock in the last year is $36.10.

Summary

Intellia Therapeutics Inc has a 1-year low of $11.03 and a 1-year high of $35.99. The company has a market capitalization of $583.57 million, a PE ratio of -7.15 and a beta of 2.91.


Option Trade – Spotify Technology SA (NYSE: SPOT) Calls

Monday, February 11, 2019

** OPTION TRADE: Buy the SPOT APR 18 2019 145.000 CALL at approximately $5.35. Place a pre-determined sell at $10.70.

Also include a protective stop loss of $2.20.

Spotify Technology SA (NYSE: SPOT) continued to report robust revenue, user and margin growth all throughout 2018 despite concerns regarding rising competition and lack of a competitive moat to protect against that competition.

The streaming music market has huge growth potential, and Spotify has huge brand and technology advantages over its peers. The market still has to realize this in 2019; therefore, expect sentiment to adjust, and Spotify stock will bounce back from the burst bubble it suffered as a once high-flying favorite on Wall Street.

Wall Street has misread Spotify's latest earnings report and guidance, and that misunderstood stocks like these give investors an opportunity to make some money. Spotify is very much on the right track.

The stock was rocked after a seemingly mixed quarterly earnings released recently. After Spotify reported lower-than-expected sales, tight cash flow and conservative guidance across the board including subscriber growth, shares sold below $129 at one point.

However, the company beat expectations on operating profit and gross margin, which was 120 basis points higher than was asked for. At this point, CEO Daniel Ek and his team have established a track record of giving cautious guidance—under promise—and then beating it—over delivering.

The music player is a subscriber growth story with 116 million monthly users—supported by ads—and 96 million subscribers. Monthly active users grew 29 percent year over year and premium subscribers grew 36 percent, which beat expectations.

There are a lot more positives outweighing the negatives!

Spotify has a 9 percent interest in Chinese music streaming company Tencent Music and has planned as much as $500 million worth acquisitions this year. CEO Ek said he wants to make Spotify "a Netflix type of story"in investments as it makes a play for podcast companies Gimlet Media and Anchor.

About Spotify…..

Spotify has been called the Netflix of music, and clearly the company has plans to expand its audio content reach far beyond that.

Operating in nearly 80 countries, Spotify said its total number of users, including of its ad-supported service, grew to 207 million in 2018, up from 191 million at the end of September.

The service, which launched in Sweden in 2008, has reached 96 million paying subscribers. That compares with around 50 million paying subscribers for its closest rival Apple Inc's Apple Music, which launched in 2015.

It forecast 117-127 million premium subscribers by the end of 2019, compared with analysts' average forecast of 121 million.

SPOT’s 96 million paying subscribers nearly double Apple Music’s roughly 50 million.

Past Performance…..

Spotify surprised investors on multiple fronts. The popular streaming music service beat estimates by reporting its first-ever quarterly profit. It further defied expectations by using much of this profit to purchase two firms involved with podcasting. Unfortunately for SPOT bulls, Spotify stock fell following this news – but leaves the door wide-open for this options play!

Revenue jumped 30% to 1.5 billion euros ($1.7 billion), driven by strong premium subscriber additions. Spotify added 9 million premium subscribers during the quarter, bringing its total to 96 million. The bulk of those additions (7 million) were added as part of a six-week promotional campaign that the company ran over the holidays. Ad-supported listeners grew to 116 million, with total monthly active users (MAUs) hitting 207 million. Note that those two figures don't add up since some premium subscribers are inactive. The high end of Spotify's outlook had called for 96 million premium subscribers and 206 million total MAUs.

The family and student plans continue to grow nicely, reducing both churn and premium average revenue per user (ARPU). Churn declined 30 basis points to 4.8%, while premium ARPU came in at 4.89 euros ($5.56). Markets with lower ARPU are also starting to represent a larger proportion of the subscriber base, also hurting premium ARPU. Spotify prices its service differently in various countries around the world to accommodate local market conditions, and emerging markets are becoming an increasingly important growth driver for the company.

Gross margin expanded to 26.7%, thanks in part to a few one-time items like a license fee adjustment that was recognized in the fourth quarter. Premium gross margin was 27.3% and ad-supported gross margin was 22.1%. Spotify was able to reduce operating expenses by 17% to 305 million euros ($347 million), resulting in the company's first operating profit of 94 million euros ($107 million).

There is plenty of potential for a turnaround in regard to how the Stockholm-based company puts some of those earnings to work. Spotify purchased a broadcasting studio called Gimlet Media as well as Anchor, a creation app. Although Spotify did not release the cost of these purchases, Gimlet was rumored to have sold for $230 million.

Spotify last released its earnings results on Wednesday, February 6th.

Moving Forward…..

Spotify said it will focus on growth over profitability and announced two major acquisitions, Gimlet and Anchor, to beef up its podcasting capabilities. CEO Daniel Ek said that Spotify's future wouldn't rest solely on music, but rather all forms of audio content. Podcasting represents what Ek calls "the next phase of growth in audio." Ek also noted that podcast listeners are nearly twice as engaged as non-podcast listeners. Without royalty expenses, podcasts also represent margin upside.

There's more where that came from: Spotify has allocated a total of $400 million to $500 million toward acquisitions that it plans to make in 2019. Even without knowing how much Spotify is spending on Gimlet and Anchor, it's clear that the company is keeping its powder dry.

Influencing Factors…..

Currently, 90% of Spotify's income comes from premium services. Ad revenue constitutes most of the remainder. Spotify has become one of the world's largest streaming services.

To Spotify's credit, pivoting into podcasts allows for the creation of original, proprietary content. In this area, its peer Sirius (NASDAQ: SIRI) has created programs, some of which have gone on to critical acclaim. Now, Spotify could follow the same path to success.

If Spotify creates podcasts that attract listeners, SPOT stock will almost certainly benefit. However, with this move, Spotify begins its transition from music streamer to podcast content provider.

Analysts Opinions

Royal Bank of Canada reissued their outperform rating on shares of Spotify in a research report released last Thursday.

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

  • Rosenblatt Securities reaffirmed a “buy” rating and set a $171.00 price target on shares of Spotify in a research note on Sunday.
  • Wells Fargo & Co reduced their price objective on Spotify from $150.00 to $140.00 and set a “market perform” rating for the company in a research note on Wednesday, January 16th.
  • Finally, Morgan Stanley reissued an “overweight” rating and set a $170.00 price objective (down from $200.00) on shares of Spotify in a research note on Friday, January 11th.

Shares of Spotify have earned an average recommendation of “Buy” from the thirty-three brokerages that are covering the stock. One analyst has rated the stock with a sell rating, eight have assigned a hold rating, twenty-three have assigned a buy rating and one has given a strong buy rating to the company. The average 1-year price target among analysts that have issued ratings on the stock in the last year is $190.70.

Summary

SPOT defied expectations by reporting a profit at a time when most everyone had expected just another loss. The subsequent selloff likely came about due to its revenue miss and not due to other factors.

Still, it is the "other factors" that may become important going forward, namely the move into podcast production. As a content creator, it has a chance to offer what its competitors cannot match.

Spotify has a fifty-two week low of $103.29 and a fifty-two week high of $198.99.






Search Stock Options
Made Easy



Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...

Whether you prefer to take a laid-back approach to your trading,

or to charge ahead in your options trading,

 Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just  $39 or $79 per month.







Subscribe to our FREE
newsletter for all the latest options news!


Enter Your Email Address

Enter Your First Name