“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, July 06, 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 – Fortinet Inc (NASDAQ: FTNT) Calls

Wednesday, July 08, 2020

** OPTION TRADE: Buy FTNT SEPT 18 2020 150.000 CALLS at approximately $6.50 (Up to $7.00).

Place a pre-determined sell at $13.00.

Also include a protective stop loss of $2.70.

Preamble.....

Headquartered in Sunnyvale, CA, Fortinet Inc (NASDAQ: FTNT) is a provider of network security appliances and Unified Threat Management (UTM) network security solutions to enterprises, service providers and government entities worldwide. Its products and services are sold through a network of more than 20,000 channel partners worldwide including distributors, resellers, value-added resellers and managed service providers.

And, the cybersecurity company has been on a tear up the charts since the broad-market selloff earlier this year. Not only did the equity clear the $20 billion market cap level for the first time ever back in May, but the shares are now up nearly 30% year-to-date. Fortinet is the leading name in its sector, and sports even more potential when surrounding concerns regarding security for the upcoming presidential election. With major support emerging at the 40-day moving average and $130 level.

Past Earnings…..

Fortinet last posted its earnings results on Wednesday, May 6th.

The software maker reported $0.60 earnings per share for the quarter, beating the consensus estimate of $0.50 by $0.10. The company had revenue of $576.90 million for the quarter, compared to analyst estimates of $554.22 million.

Fortinet had a net margin of 16.44% and a return on equity of 32.91%. Fortinet’s revenue was up 22.1% on a year-over-year basis. During the same period in the previous year, the business posted $0.46 EPS.

Future Earnings…..

Fortinet is scheduled to announce its next earnings results after the market closes on Thursday, August 6th.

Wall Street brokerages expect Fortinet to post $0.65 earnings per share (EPS) for the current quarter. Fortinet posted earnings per share of $0.58 in the same quarter last year, which would indicate a positive year-over-year growth rate of 12.1%.

As well, the latest consensus estimate is calling for revenue of $598.82 million, up 14.78% from the prior-year quarter.

On average, analysts expect that Fortinet will report full-year earnings of $2.81 per share for the current financial year, with EPS estimates ranging from $2.70 to $2.90. For the next fiscal year, analysts anticipate that the company will post earnings of $3.30 per share, with EPS estimates ranging from $3.00 to $3.55.

Influencing Factors…..

Earnings growth has seen surging profit levels. The historical EPS growth rate for Fortinet is 116.2%. The company's EPS is expected to grow 13.9% this year, crushing the industry average, which calls for EPS growth of -9.7%.

The current-year earnings estimates for Fortinet have been revising upward. The Consensus Estimate for the current year has surged 2.7% over the past month.

Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- exhibits how efficiently a firm is utilizing its assets to generate sales.

Right now, Fortinet has an S/TA ratio of 0.65, which means that the company gets $0.65 in sales for each dollar in assets. Comparing this to the industry average of 0.48, it can be said that the company is more efficient.

In addition to efficiency in generating sales, sales growth plays an important role. And Fortinet looks attractive from a sales growth perspective as well. The company's sales are expected to grow 15.9% this year versus the industry average of 8.1%.

COVID Crisis and Effect…..

The U.S. stock market gained on Jul 2 as investor optimism about market recovery from the COVID-19 crisis got a boost after the U.S. Labor Department reported an unexpected drop in unemployment rate. According to the latest data released by the U.S. Bureau of Labor Statistics, the unemployment rate fell to 11.1% in June from 13.3% in May.

The U.S. economy added 4.8 million jobs in June, marking the second consecutive month of gains following more than 20 million of job losses recorded in April due to the pandemic. In May, the economy created 2.7 million jobs, bringing down the unemployment rate to 13.3% from the post-World War II high of 14.7% in April.

Notably, the stock market is in a recovery mode since April after bottoming out in late-March due to the pessimism surrounding the coronavirus crisis. Optimism over a potential vaccine for COVID-19 and an uptick in economic activities, with lockdown measures starting to ease, are mainly driving the U.S. stock market.

The latest data released by the Labor Department has further boosted investor confidence about the economy’s fast recovery from the coronavirus crisis.

And, the technology sector has played a crucial role in the quicker-than-expected recovery of the stock market, opening up newer avenues of growth for tech companies such as Fortinet.

Fortinet is positioned well to capitalize on the rising demand for security and networking products amid the coronavirus crisis, which has compelled a huge workforce globally to work remotely. It is also benefiting from robust growth in Fortinet Security Fabric, cloud and SD-WAN offerings. Also, continued deal wins, especially those of high value, are key growth drivers for this company.

Cyber-Attacks…..

Fortinet is gaining from rising cyber-attack risks that are propelling demand for its FortiMail platform, which can be used to block specific file types containing certain keywords, such as those related to coronavirus. This company is also capable of sending attachments to the FortiSandbox solution to check whether the file displays any malicious activity.

The Consensus Estimate for this $22.38-billion company’s 2020 earnings stands at $2.81 per share, having moved 9.3% north over the past 60 days.

Analysts Outlook…..

Fortinet had its price objective lifted by Wedbush from $150.00 to $170.00 in a research report released last month. They currently have an outperform rating on the software maker’s stock.

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

  • Monness Crespi & Hardt lifted their price target on shares of Fortinet from $133.00 to $140.00 and gave the company a buy rating in a report on Thursday, May 7th.
  • Barclays lifted their price target on shares of Fortinet from $122.00 to $132.00 and gave the company an equal weight rating in a report on Thursday, May 7th.
  • Bank of America reaffirmed a buy rating and set a $140.00 price target (up from $120.00) on shares of Fortinet in a report on Thursday, May 7th.
  • Citigroup lifted their price target on shares of Fortinet from $88.00 to $92.00 and gave the company a sell rating in a report on Friday, May 8th.
  • Finally, Cfra lifted their price target on shares of Fortinet from $95.00 to $125.00 and gave the company a hold rating in a report on Wednesday, February 12th.

One investment analyst has rated the stock with a sell rating, fifteen have assigned a hold rating and thirteen have assigned a buy rating to the stock. The company presently has an average rating of “Hold” and an average price target of $123.88.

So…..

The stock has a market cap of $22.83 billion, a price-to-earnings ratio of 65.28, a PEG ratio of 5.15 and a beta of 1.01. The company has a fifty day moving average price of $138.28 and a two-hundred day moving average price of $116.43. Fortinet has a 1-year low of $70.20 and a 1-year high of $149.69.


Option Trade – Mondelez International Inc Common Stock (NASDAQ: MDLZ) Calls

Tuesday, July 07, 2020

** OPTION TRADE: Buy MDLZ DEC 18 2020 52.500 CALLS at approximately $2.80 (Up to $3.00).

Place a pre-determined sell at $5.60.

Also include a protective stop loss of $1.15.

Preamble.....

One of the effects of the “stay-at-home” due to the coronavirus is that more Americans will continue to cook more for themselves. Also, as new habits form and Covid-19 cases force some states to halt or rollback reopening plans this will become a more inviting scenario.

Analyst Michael Lavery takes a look at the packaged-food space following his firm’s latest coronavirus-related survey, which “suggests a sustainable lift for food-at-home sales of perhaps 15% or more.” Two-thirds of respondents said in June that they are likely to eat more at home than they did before, even after Covid-19, marking only a very small decline from April and May.

Moreover, those who do plan to cook expect to eat an average of four more meals at home. More than half said that they are either unlikely or not sure whether they will return to newly reopened restaurants, an increase from readings in both April and May.

Of course, people can still get takeout from restaurants, but overall the results make Lavery more cautious on restaurants. By contrast, he writes that meal-oriented packaged-food companies look likely to continue to reap the benefits of at-home eating.

And, one snacking-oriented company that will benefit little or modest food-service exposure, is Mondelez International Inc Common Stock (NASDAQ: MDLZ).

About Mondelez International…..

Headquartered in Deerfield, Mondelez (MDLZ) is a Consumer Staples stock.

In 2011, Kraft Foods announced it would split into an international snack and beverage company and a North American grocery company. That international snack and beverage company would become Mondelez in October 2012. Today, Mondelez is a leading manufacturer and distributor of snack foods and beverages, selling its products in 160 countries.

Mondelez International, Inc, through its subsidiaries, manufactures and markets snack food and beverage products worldwide. It offers biscuits, including cookies, crackers, and salted snacks; chocolates; and gums and candies, as well as various cheese and grocery, and powdered beverage products.

The company's primary snack brand portfolio includes Cadbury, Milka, and Toblerone chocolates; Oreo, belVita, and LU biscuits; Halls candies; and Trident gums and Tang powdered beverages.

Past Earnings…..

Mondelez released first-quarter earnings results on April 28. Adjusted earnings per share increased 6.2% to 69 cents, topping Wall Street's expectations by 3 cents. Revenue grew 2.6% to $6.7 billion, coming in nearly $97 million higher than expected.

What really stood out about the quarter is the company's organic growth, which was 6.4%. The market had anticipated organic growth of 4%. Expectations were already very high and Mondelez managed to top them. Even more impressive is that the company had 3.7% organic growth in the first quarter, so the two-year stacked organic growth is more than 10%. That isn't too common among snack food and beverage companies.

Future Earnings…..

Mondelez is scheduled to announce its next quarterly earnings report on Tuesday, August 4th.

Equities research analysts forecast that Mondelez will report sales of $5.84 billion for the current fiscal quarter. Mondelez International posted sales of $6.06 billion during the same quarter last year, which suggests a negative year over year growth rate of 3.6%.

Also, equities analysts expect Mondelez to post earnings per share of $0.56 for the current fiscal quarter. Mondelez International posted earnings of $0.57 per share during the same quarter last year, which would indicate a negative year-over-year growth rate of 1.8%.

Influencing Factors…..

Mondelez led all other competitors in terms of market share for biscuit snacks in 2019. The company holds second place in terms of market share for the chocolate and gum and candy sector. Mondelez has a market capitalization of $71.5 billion today.

The growth found in developed markets and the weakness in reported sales for emerging markets can be attributed to the Covid-19 pandemic. Consumers stocked up on products in North America ahead of stay-at-home orders while emerging markets saw more abrupt lockdowns that had an impact on sales and distribution.

Despite these challenges, Mondelez held or increased its share in 80% of the markets that it maintains a presence. Biscuits as a category, which makes up about 45% of total revenue, had a surge in demand that led to at least mid-teen growth in sales for Oreo, Ritz, Triscuit, Wheat Thins and belVita in the U.S. These products added 2.5% to growth in the last three weeks of the first quarter alone. Even China had some positive news, as Biscuits were higher by 7% to close the quarter.

Mondelez's financials appear to be in decent shape. The company had $1.9 billion in cash and equivalents on its balance sheet at the end of the quarter. This is the highest cash position that the company has had in several quarters. On the flip side, total debt now stands at $20 billion, but just $1.7 billion of this is due in the next 12 months. Interest expense was $471 million over the last four quarters and is covered by free cash flow.

In an attempt to bolster future growth prospects, Mondelez completed its agreement to purchase a $1.2 billion majority interest in Give & Go on April 1. Give & Go supplies fully finished fresh products to in-store bakeries. This category has a mid-single-digit growth rate over the past few years and strengthens Mondelez's presence in a number of snack channels, such as brownies, cupcakes, pastries and muffins.

Analysts Outlook…..

Jefferies Financial Group reaffirmed a “buy” rating and set a $60.00 target price on shares of Mondelez International in a research note on Tuesday, June 23rd.

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

  • Credit Suisse Group restated a “buy” rating and issued a $62.00 price target on shares of Mondelez International in a research note on Thursday, May 7th.
  • Berenberg Bank upgraded Mondelez International from a “hold” rating to a “buy” rating and increased their price target for the company from $52.00 to $61.00 in a research note on Monday, June 15th.
  • BidaskClub cut Mondelez International from a “hold” rating to a “sell” rating in a research report on Tuesday, June 30th.
  • Guggenheim lowered their price objective on Mondelez International from $58.00 to $57.00 and set a “buy” rating on the stock in a research report on Wednesday, April 29th.
  • Finally, Morgan Stanley increased their price objective on Mondelez International from $58.00 to $61.00 and gave the stock an “overweight” rating in a research report on Monday, June 8th.

One analyst has rated the stock with a sell rating, two have issued a hold rating and fifteen have assigned a buy rating to the stock. The stock has a consensus rating of “Buy” and a consensus target price of $61.19.

So…..

Growing top and bottom lines in a difficult environment is a strong sign of the company's business. Mondelez's ability to maintain and grow market share in the vast majority of its markets is also a point in the company's favor.

Mondelez had a very nice start to the year even in the face of a pandemic. The company increased its market share in a number of key categories and its highest grossing line had improved demand. While the Covid-19 pandemic and the resulting lockdown directives played a part in this growth, Mondelez can use these new-found customers to increase business if and when the spread of the coronavirus subsides.

Mondelez International has a 52 week low of $41.19 and a 52 week high of $59.96. The company’s 50-day moving average is $51.31 and its 200-day moving average is $52.96. The company has a debt-to-equity ratio of 0.54, a quick ratio of 0.39 and a current ratio of 0.53. The firm has a market cap of $74.06 billion, a PE ratio of 20.24, a price-to-earnings-growth ratio of 3.10 and a beta of 0.61.