“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, August 13, 2018

by Ian Harvey

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

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Option Trade – Estee Lauder Companies Inc (NYSE: EL) Call

Friday, August 17, 2018

** OPTION TRADE: Buy the EL SEPT 21 2018 135.000 CALL at approximately $4.00. Place a pre-determined sell at $8.00.

Also include a protective stop loss of $1.60.

Estee Lauder Companies Inc (NYSE: EL), a manufacturer and marketer of skin care, makeup, fragrance, and hair care products worldwide, will release fourth-quarter fiscal 2018 results on Monday, August 20, before the market opens.

Management expects growth opportunities in the global prestige beauty industry, which is anticipated to grow 6-7% in fiscal 2018. This is likely to drive fiscal fourth-quarter results.

Also, management expects sales to grow approximately 8-9% (in constant currency) for the impending quarter. The Consensus Estimate for revenues is pegged at $3,260 million, depicting a rise of 12.6% from the prior-year quarter's level.

As well, management expects earnings in the fourth quarter in the range of 48-52 cents, including a 7 cents benefit from currency. The Consensus Estimate for earnings is currently pegged at 56 cents, reflecting a 9.8% increase from the year-ago quarter’s tally.

For the last reported quarter, Estee Lauder came out with earnings of $1.17 per share versus the Consensus Estimate of $1.07 per share, representing a surprise of 9.35%. For the previous quarter, the company was expected to post earnings of $1.44 per share and it actually produced earnings of $1.52 per share, delivering a surprise of 5.56%.

Influencing Factors…..

When looking at the last two reports, this beauty products company has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 7.45%, on average, in the last two quarters.

Recent estimates have been moving higher for Estee Lauder. In fact, Earnings ESP (Expected Surprise Prediction) for the company is positive, which is a great sign of another earnings beat. Estee Lauder currently has an Earnings ESP of +1.31%, which suggests that analysts have recently become bullish on the company's earnings prospects.

E-commerce has been a vital revenue generating platform for Estee Lauder, considering consumers’ increasing preference for online shopping. In this respect, constant technological up-gradations along with a digital-first mindset have been boosting the company’s online sales and driving the top line.

During third-quarter fiscal 2018, online sales were strong, with exceptionally robust performance in China. Also, the company’s retail dot-com sales jumped double-digits in all regions.

Lately, Estee Lauder has been witnessing exceptional growth in travel retail. In particular, the fragrance category has been boosting travel retail.

The company’s investments in key markets especially Asia, has been yielding profitable increases.

Estee Lauder is committed toward its efforts to enhance conversions through strategic initiatives such as better customer insights, enhanced merchandising and improved digital marketing.

Buyouts have been enhancing Estee Lauder’s portfolio and facilitating a strong business network. Notably, the acquisitions of BECCA and Too Faced have been strengthening the company’s fastest-growing prestige portfolio and contributed nearly 2 percentage points to sales during fiscal 2018.

Analysts and Hedge Funds Opinions

Oppenheimer analyst Rupesh Parikh reiterated a Buy rating on The Estée Lauder Companies on Monday and set a price target of $148.

Parikh observed:

“Ahead of the print, we spent time updating our views on EL. We continue to look very favorably upon EL’s L-T prospects, but expect a bumpier ride from here given prospects for slowing top and bottom-line growth and increased geopolitical uncertainty. EL generates more than 85% of operating income outside of the US. We still feel comfortable with 6-7% constant currency growth (ex. M&A) and double-digit EPS delivery, which stands out in CPG land and supports our continued Outperform rating. Given the potential for less earnings upside and increased uncertainty near term, we are removing EL as a top pick and are lowering our PT to $148 from $170. This suggests upside potential of ~12% from current levels. Our updated top picks include DG, CHD, and ULTA.”

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

  • UBS Group started coverage on Estee Lauder Companies in a research report on Thursday, July 19th. They set a “neutral” rating and a $144.00 price target on the stock.
  • Morgan Stanley cut shares of Estee Lauder Companies from an “overweight” rating to an “equal weight” rating and set a $153.00 price objective on the stock in a research report on Monday, June 25th.
  • Wells Fargo & Co upped their price objective on shares of Estee Lauder Companies from $150.00 to $168.00 and gave the stock an “outperform” rating in a research report on Thursday, April 19th.
  • Evercore ISI started coverage on shares of Estee Lauder Companies in a research report on Tuesday, May 22nd. They issued a “buy” rating and a $170.00 price objective on the stock.
  • Finally, Deutsche Bank upgraded shares of Estee Lauder Companies from a “hold” rating to a “buy” rating in a research report on Thursday, May 3rd.

Estee Lauder has been given a consensus rating of “Buy” by the twenty-six research firms that are currently covering the firm. Seven equities research analysts have rated the stock with a hold rating and nineteen have given a buy rating to the company. The average 12-month price target among brokers that have updated their coverage on the stock in the last year is $155.57.

Summary

This cosmetics giant has delivered positive earnings and sales surprise for 15 and five consecutive quarters, respectively. The impressive performance can be attributed to well-chalked buyouts, strong market reach as well as a robust online and travel retail network. These upsides have been enabling the company to counter receding traffic in the U.S. brick-and-mortar stores.

Estee Lauder has a market cap of $51.90 billion, a PE ratio of 40.46, a PEG ratio of 2.06 and a beta of 0.63. The company has a debt-to-equity ratio of 0.71, a quick ratio of 1.37 and a current ratio of 1.82. Estee Lauder Companies has a one year low of $97.57 and a one year high of $158.80.


Option Trade – Deere & Company (NYSE:DE) Puts

Monday, August 13, 2018

** OPTION TRADE: Buy the DE SEPT 21 2018 135.000 PUT at approximately $4.40. Place a pre-determined sell at $8.80.

Also include a protective stop loss of $1.75.

Deere & Company (NYSE:DE), engaged in equipment operations, will report earnings on Friday, August 17, 2018, before the market opens. Equities research analysts forecast that Deere & Company (NYSE:DE) will report $2.76 earnings per share for the current fiscal quarter. Five analysts have issued estimates for Deere & Company’s earnings, with the lowest EPS estimate coming in at $2.61 and the highest estimate coming in at $2.84. Deere & Company reported earnings per share of $1.97 in the same quarter last year.

Also, Wall Street brokerages predict that Deere & Company will announce sales of $9.20 billion for the current quarter. Five analysts have provided estimates for Deere & Company’s earnings, with estimates ranging from $9.19 billion to $9.21 billion. Deere & Company posted sales of $6.83 billion in the same quarter last year.

In the past three months, Deere’s 100-day moving average price has fallen from $157.80 to $146.60, which indicates a downward trend in the stock.

Deere stock has fallen 9.2% year-to-date.

UBS analysts say escalation of trade wars could impact earnings growth and send stock prices lower.

UBS analysts said the stocks in their coverage universe most impacted by trade tensions have underperformed the S&P 500 by about 4.5 percent since trade frictions began to intensify in mid-March.

Analysts and Hedge Funds Opinions

OTR Global cut shares of Deere & Company to a $139.21 rating in a research note released on Wednesday, July 18.

Also, Deere & Company had its price target lowered by UBS Group from $185.00 to $177.00 in a research report published on Friday, July 20th. The firm currently has a buy rating on the industrial products company’s stock.

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

  • ValuEngine cut shares of Deere & Company from a buy rating to a hold rating in a report on Tuesday, June 5th.
  • Bank of America upgraded shares of Deere & Company from a neutral rating to a buy rating and set a $159.00 price target on the stock in a report on Thursday, May 3rd.
  • Royal Bank of Canada restated a buy rating and set a $200.00 price target on shares of Deere & Company in a report on Wednesday, April 18th.
  • TheStreet upgraded shares of Deere & Company from a c+ rating to an a- rating in a report on Friday, May 18th.
  • Finally, Goldman Sachs Group cut shares of Deere & Company from a conviction-buy rating to a buy rating in a report on Monday, July 16th.

Two equities research analysts have rated the stock with a sell rating, five have given a hold rating and sixteen have assigned a buy rating to the company. The company has a consensus rating of Buy and a consensus target price of $181.42.

Summary

Deere & Company has a market cap of $44.44 billion, a PE ratio of 17.15, a price-to-earnings-growth ratio of 2.50 and a beta of 0.85. Deere & Company has a 1 year low of $112.87 and a 1 year high of $175.26. The company has a quick ratio of 1.64, a current ratio of 1.91 and a debt-to-equity ratio of 2.52.






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