“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, May 13, 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

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Option Trade – iRobot Corporation (NASDAQ: IRBT) Calls

Wednesday, May 15, 2019

** OPTION TRADE: Buy the IRBT JUL 19 2019 95.000 CALL at approximately $5.20. Place a pre-determined sell at $10.40.

Also include a protective stop loss of $2.10.

Automated vacuum cleaners were the stuff of science fiction a few decades ago. But the Bedford, Massachusetts-based firm iRobot Corporation (NASDAQ: IRBT) made them a mass-market reality back in 2002 with the Roomba. This builder and marketer of robots has been one of the well-touted revolutionary ideas that have lived up to all expectations, and iRobot deservedly dominates the robotic vacuum cleaner (RVC) market with a 62% share.

iRobot Corporation has been struggling lately, but the selling pressure may be coming to an end soon. That is because IRBT recently saw a Hammer Chart Pattern which can signal that the stock is nearing a bottom.

A hammer chart pattern is a popular technical indicator that is used in candlestick charting. The hammer appears when a stock tumbles during the day, but then finds strength at some point in the session to close near or above its opening price. This forms a candlestick that resembles a hammer, and it can suggest that the market has found a low point in the stock, and that better days are ahead.

Despite the innovations, a massive first-quarter earnings beat, and roughly 9.5% Q1 2019 revenue growth, IRBT stock has plummeted since the firm released its Q1 results. Much of the downturn can be attributed to its sales miss and its roughly 8% year-over-year adjusted earnings decline.

As mentioned at the top, shares of iRobot have tumbled 22% since April 23. Nonetheless, shares of IRBT are still up approximately 22% this year and 75% in the past 12 months. And it seems that the post-Q1 selloff might be over for now, with IRBT shares showing signs of stability.

About iRobot…..

iRobot helped launch the home robot cleaning market with its Roomba robot vacuum all the way back in 2002. The Bedford, Massachusetts-based firm now offers three core products: its Roomba vacuums that start at $299.99, its Braava Robot mops that begin at $199.99, and its Mirra pool cleaners that start at $999.99. Also note that iRobot is preparing to launch two new products during the second quarter.

Earnings Estimates Rising…..

Earnings estimates have been rising for iRobot, even despite the sluggish trading lately. In just the past 60 days alone 4 estimates have gone higher, compared to none lower, while the consensus estimate has also moved in the right direction.

This suggests that this relatively unloved stock could be due for a breakout soon. This will be especially true when IRBT stock builds momentum from here and finds a way to continue higher from this encouraging trading development.

Past Earnings Report…..

Shares of robotic-vacuum giant iRobot plummeted in late April after the company reported first-quarter numbers which missed revenue expectations. The disappointing sales broadly implied that the company's robust growth trajectory was flattening out.

Moving Forward…..

Although the iRobot growth narrative did slow down dramatically in the first quarter; this slowdown is largely meaningless because it's temporary. Over the next three quarters of 2019 and into 2020, growth will re-accelerate thanks to new product launches. One of them includes the debut of the highly anticipated robotic lawnmower Terra.

As such, the market seems to be overreacting to a Q1 slowdown in iRobot stock that simply won't last much longer than this quarter. As growth re-accelerates through the balance of 2019, bulls will take charge again, and IRBT stock will rebound meaningfully.

In yet another indication the company is exactly where it wants to be, iRobot reaffirmed both its 2019 outlook for revenue of $1.29 billion to $1.31 billion, up 17% to 20% from 2018, and its guidance for operating income ranging from $108 million to $118 million.

Looking ahead, the robotic vacuum firm said that it plans to slowly move production of some of its “more easy to build products” outside of China in an effort to combat tariffs and continued trade dispute worries. Executives noted that the efforts will help iRobot create long-term supply chain flexibility. For now, however, China will remain its production hub. 

Maintaining Lead…..

iRobot is even better positioned to maintain its lead now than it was just a few months, for a couple of different reasons…..

  • …..One of them is the December ruling from the International Trade Commission that bans the sale of competing, foreign-made robotic vacuum cleaners in the United States. The commission determined that in many cases, iRobot’s patent protection had been unfairly utilized by lower-priced competing devices.
  • …..The other reason IRBT remains an impressive mid-cap growth prospect. Even though it already has the top tech in the industry at its disposal, it continues to innovate. The recently launched Roomba models, the i7 and i7+, include not only a superior map-making technology, but the option of an accessory that automatically dumps the debris and dust scooped up by the RVCs. They’ll even accept voice-based commands given through popular smart speakers.

Other Driving Forces…..

This company expands its addressable market almost every year by introducing a new consumer robotics product. This trend will persist for the next several years as consumer robotics become the household norm. Ultimately, then, iRobot will benefit from huge revenue and profit growth in a long term window.

IRBT plans on launching two new products next quarter. Those new product launches are expected to propel revenue growth back to the high-teens range. Meanwhile, the Terra robotic lawnmower is set to launch later this year, and that new-product launch is expected to help drive nearly 20% revenue growth for the full year 2019.

“With the launch of two new products in the second quarter, along with the Terra launch later this year, we will have introduced five major new products in the past 12 months,” founder and CEO Colin Angle said.

Consequently, viable new products will again ramp up revenue. Therefore, expect sales growth to return to approximately end-of-2018 levels.

Analysts…..

iRobot had its target price boosted by equities research analysts at JPMorgan Chase & Co. from $88.00 to $100.00 in a report released on Thursday, April 18th. The brokerage presently has a “neutral” rating on the industrial products company’s stock.

Also, Northland Securities reiterated their buy rating on shares of iRobot in a research report sent to investors on Tuesday, April 9th. They currently have a $130.00 target price on the industrial products company’s stock.

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

  • Sidoti lowered iRobot from a “buy” rating to a “neutral” rating and set a $118.00 price target on the stock in a research report on Thursday, February 21st. They noted that the move was a valuation call.
  • ValuEngine upgraded iRobot from a “hold” rating to a “buy” rating in a research report on Wednesday, January 30th.
  • Finally, Piper Jaffray Companies raised their price target on iRobot from $82.00 to $96.00 and gave the stock a “neutral” rating in a research report on Thursday, February 7th.

Eight equities research analysts have rated the stock with a hold rating, one has assigned a buy rating and two have issued a strong buy rating to the company. The stock presently has a consensus rating of “Hold” and an average price target of $114.12.

Summary…..

All in all, then, the outlook for the rest of the year is for operations to dramatically improve from a depressed Q1. As operations do improve, IRBT stock should bounce back. This company projects as a big grower for the foreseeable future, and that big growth will ultimately keep IRBT stock on a winning path.

The reason to buy IRBT stock is because this stock is due for a major bounce-back. IRBT stock was killed in late April on poor Q1 numbers. But, poor Q1 numbers are an anomaly, not the trend. New product launches - including the robotic lawnmower - will drive improved results at iRobot, and that improvement will power a huge recovery rally in IRBT stock.

iRobot has a 1-year low of $56.61 and a 1-year high of $132.88. The stock has a market capitalization of $3.61 billion, a PE ratio of 29.55, and a P/E/G ratio of 2.01 and a beta of 1.73.

 


Option Trade – Keysight Technologies Inc (NYSE: KEYS) Calls

Tuesday, May 14, 2019

** OPTION TRADE: Buy the KEYS AUG 16 2019 85.000 CALL at approximately $4.50. Place a pre-determined sell at $9.00.

Also include a protective stop loss of $1.80.

The technology sector has suffered due to the continued volatility probably more than any other sector.

One area that could be a winner is the nascent 5G technology. As smartphone manufacturers look to bring this technology to market in a new generation of smartphones, there are companies that provide the technology that makes these connections work and they will be the winners as this technology moves into the adoption phase. Another area to look at is companies that make their business through cloud services. While some established companies have taken revenue hit as they moved away from selling the hardware and infrastructure that came with their product, the move towards a subscription base is providing – in many cases – more predictable revenue streams.

Keysight Technologies Inc (NYSE: KEYS), an electronics test and measurement equipment and software company based out of Santa Rosa, Calif, is one company that is benefiting from the commercialization of 5G technology. KEYS makes the testing equipment that offers solutions for the companies that are looking to profit from the development of a 5G network, particularly as 5G engineers look to ensure that all the complexity of 5G connections is addressed before the products reach the market. In fact, Keysight’s 5G toolset was the first to receive approval for 5G device-certification purposes giving it a leg up on competitors as other companies look for products to test their 5G technologies. Keystone has solutions that extend beyond 5G as well. The company has been looked to for testing solutions by a range of companies including network security developers, connected car designers, cloud-computing solutions providers and more.

The stock is currently up 30% YTD and the company is projecting 12% earnings growth in 2019 suggesting the stock may still have room to run.

Keysight Technologies had a great beginning to the new year, rallying from $56 to nearly $86 by late February. The advance slowed down then but it remained intact … until the latter part of last month.

That's when the rally broke down. It hasn't broken below a key support level as yet. In fact, that support level has become even better defined since then.

Earnings…..

The company, which spun off from Agilent Technologies in 2014, saw its shares jump in November on better than expected fiscal Q4 results. Revenue rose 19% YOY to $1.05 billion and adjusted earnings increased 42% to $1.05 per share. Management was positive about expanding into key growth sectors including 5G, the IoT, next-generation wireless, high-speed datacenters, automotive, and energy. CEO Ron Nersesian cited a record $3.9 billion in revenue for 2018, noting that Keysight would “continue to see broad-based momentum across multiple end markets without solutions.”

Other top-line growth drivers include new collaborations, an expansion into the Asia Pacific and the adoptions of the firm’s 5G testing and design solutions. Shares of Keysight, up 44% YTD through Dec. 17, reflect a market cap at $11.5 billion.

Keysight Technologies will release second quarter fiscal 2019 earnings after the stock market closes on May 29.

The company is expected to report EPS of $0.98, up 18.07% from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $1.07 billion, up 8.55% from the year-ago period.

KEYS's full-year Consensus Estimates are calling for earnings of $3.98 per share and revenue of $4.24 billion. These results would represent year-over-year changes of +22.84% and +9.34%, respectively.

Analysts…..

Keysight Technologies had its price target raised by analysts at Stifel Nicolaus from $87.00 to $100.00 in a research report issued to clients and investors on Monday, April 1st. The firm presently has a “buy” rating on the scientific and technical instruments company’s stock. Stifel Nicolaus’ price objective points to a potential upside of 7.77% from the company’s previous close.

Also, Keysight Technologies had its price objective lifted by equities researchers at Deutsche Bank from $100.00 to $120.00 in a report released on Monday. The firm currently has a “buy” rating on the scientific and technical instruments company’s stock. Deutsche Bank’s price objective points to a potential upside of 32.46% from the company’s previous close.

Other analysts opinions…..

  • TheStreet raised Keysight Technologies from a “c+” rating to an “a-” rating in a research note on Thursday, February 21st.
  • Jefferies Financial Group boosted their price target on Keysight Technologies to $100.00 and gave the company a “buy” rating in a report on Tuesday, February 26th.
  • Credit Suisse Group lifted their price objective on Keysight Technologies from $75.00 to $90.00 and gave the stock an “outperform” rating in a research report on Friday, February 22nd.
  • Finally, Zacks Investment Research upgraded Keysight Technologies from a “hold” rating to a “buy” rating and set a $88.00 price target on the stock in a report on Tuesday, February 14th.

One research analyst has rated the stock with a sell rating, one has issued a hold rating, nine have issued a buy rating and one has assigned a strong buy rating to the company’s stock. The company currently has a consensus rating of “Buy” and an average price target of $88.33.

Summary…..

Keysight Technologies Inc has a one year low of $52.55 and a one year high of $93.77. The company has a quick ratio of 1.36, a current ratio of 1.82 and a debt-to-equity ratio of 0.49. The firm has a market capitalization of $16.22 billion, a price-to-earnings ratio of 28.61 and a beta of 1.14.






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