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 – J2 Global Inc (NASDAQ: JCOM) Calls
Thursday, August 20, 2020
** OPTION TRADE: Buy JCOM DEC 18 2020 75.000 CALLS at approximately $5.00 (Up to $5.50).
Place a pre-determined sell at $10.00.
Also include a protective stop loss of $2.00.
Like many businesses, J2 Global Inc (NASDAQ: JCOM) saw earnings slip in the first half of 2020. Where Q4 2019 was the best in two years, Q1 EPS fell by nearly half. Since then, the trends have been in the right direction. Q2 earnings were low, but sequentially higher, and beat the forecasts. Projections for Q3 show earnings returning to normal levels.
RBC analyst Shweta Khajuria is impressed by J2’s ability to survive the corona crisis, come through intact, and beat the earnings forecast in Q2. She sees the stock’s current low price as an opportunity, and in the wake of the quarterly report she upgraded her stance on J2 to Outperform (i.e. Buy), while raising her price target to $90. This figure implies an upside of 27% for the coming year.
Supporting her stance, Khajuria says, “JCOM has recently remained at depressed levels largely due to COVID-related uncertainties and downside pressure from intraQ short report. That said, we believe these two overhangs have largely been cleared up and we are now constructive—here’s why:
a) Attractive valuation—JCOM is currently trading at 6.7x our ’22 EBITDA est. vs. the co.’s 3-year historical median of 8x and comps ranging 8x-14x ’22E EBITDA;
b) Stable-to-improving trends & fundamentals—in addition to proven stability in the Cloud biz, the co.’s Media biz has also been more resilient than most other ‘Net Ad names in our SMID cap space. This resiliency has been driven by the diversification of J2’s Media Brands & assets, performance marketing tilt, limited exposure to travel/local/auto categories, and strength in the healthcare vertical. Mgmt expects stable trends in H2:20 with a “tilted” U recovery."
About J2 Global……
J2 Global Communications, with internet communications, which is a mainstay of our technological society. J2 Global offers communications, messaging, and storage services on the cloud, through a variety of media sites.
The company has over 40 brands, including recognizable names like Mashable, PCMag, BabyCenter, and Everyday Health. J2 boasts a monthly reach of 230 million users, and sees some $1.4 billion in annual revenue.
Shares in J2 Global (JCOM) surged 15% in Tuesday, August11 trading after the digital media company reported impressive second quarter earnings results.
Specifically, Q2 Non-GAAP EPS of $1.71 beat Street expectations by $0.25, while GAAP EPS of $0.80 also topped consensus forecasts by $0.25. Revenue of $331M beat by $15.21M, rising 2.7% year-over-year as advertisers returned to spending through Q2 and Cloud subscriber cancel rates remained stable. Q2 EBITDA of $133M was above Street at 118M.
Meanwhile net cash provided by operating activities increased to $139.6M compared to $95.4M for Q2 2019, and Q2 2020 free cash flow increased 35.1% to $115.9M year-over-year. J2 ended the quarter with $711M in cash, cash equivalents, and investments after deploying $24M on its share repurchase program during the quarter.
Looking forward, JCOM also reinstated full-year guidance and now estimates that for fiscal year 2020 it will report revenue of $1.38B – $1.4B; Adjusted EBITDA of $556M- $570M; and Adjusted non-GAAP earnings per diluted share of $7.17 – $7.41. Revenue guide bracketed the Street while EBITDA guide was higher than Street estimates.
Over the last four quarters, the company has surpassed consensus EPS estimates three times.
"J2's outstanding results in an exceptionally challenging environment demonstrate the strength and quality of our business and the dedication of our employees," J2 Global CEO Vivek Shah said in a statement. "Our adaptability and focus led to record-breaking revenues, Adjusted EBITDA, and free cash flow for the quarter."
Citigroup upgraded shares of J2 Global from a neutral rating to a buy rating in a research note issued to investors on Monday morning. The brokerage currently has $90.00 price objective on the technology company’s stock, up from their prior price objective of $87.00.
Also, Zacks Investment Research upgraded shares of J2 Global from a sell rating to a hold rating in a research note published on Monday morning. Zacks Investment Research currently has $74.00 price objective on the technology company’s stock.
According to Zacks, “J2 Global’s second-quarter 2020 results benefited from robust performance by Digital Media segment. The company’s advertising business has low exposure to local, travel, food, and automotive, industry verticals most affected by the coronavirus. This, along with healthy display business (almost 40% healthcare), drove top-line growth. However, the company witnessed sluggishness in larger cloud-fax deployments. Moreover, lower corporate fax-page volumes from healthcare customers due to deferment of elective surgeries impeded growth. Nevertheless, J2 Global reinstalled 2020 guidance. It now expects more of a tilted U-shaped recovery against a V-shaped recovery. Moreover, divestment of Australia and New Zealand voice assets is expected to reduce second-half 2020 revenues and EBITDA. The stock has underperformed the industry year to date.”
One analyst has rated the stock with a sell rating, three have assigned a hold rating and ten have issued a buy rating to the company’s stock. The stock presently has an average rating of Buy and an average price target of $99.50.
J2 Global has a market cap of $3.42 billion, a price-to-earnings ratio of 18.82, a price-to-earnings-growth ratio of 1.33 and a beta of 0.66. J2 Global has a 1 year low of $53.24 and a 1 year high of $104.57. The firm’s 50 day moving average price is $60.23 and its two-hundred day moving average price is $74.86. The company has a debt-to-equity ratio of 0.92, a quick ratio of 1.10 and a current ratio of 1.10.
Option Trade – ANGI Homeservices Inc (NASDAQ: ANGI) Calls
Tuesday, August 18, 2020
** OPTION TRADE: Buy ANGI JAN 15 2021 15.000 CALLS at approximately $1.90 (Up to $2.50).
Place a pre-determined sell at $3.80.
Also include a protective stop loss of $0.80.
The world economy is shifting online with the pandemic accelerating global digitalization by 5 years in just 5 months. ANGI Homeservices (NASDAQ: ANGI), the company that emerged from the combination of Angie's List and HomeAdvisor, is well-positioned for the new normal, with its leading online service offerings unmatched in its niche space.
This enterprise "is creating the world's largest digital marketplace for home services, connecting millions of homeowners across the globe with home service professionals." Analysts have been increasingly optimistic about the company's outlook pushing up EPS estimates.
ANGI has performed admirably throughout the COVID-crisis trade this year, having surged almost 50% year-to-date and roughly 200% since its April lows.
The stock is trading at a reason forward price-to-sales of below 4x, half the valuation of its internet service cohorts. ANGI is over 43% off its 2018 highs, and with accelerating double-digit percentage growth expected for the next couple years, this is an excellent opportunity to jump into this COVID-19 winner.
Chief Executive Brandon Ridenour said that this was a “roller-coaster” quarter for ANGI with revenue declining in April as stay-home orders crimped demand for projects around the house. This was “followed by something no one was predicting, which was a huge rebound for consumer demand starting in late April through May, June and July.”
ANGI’s revenue fell 2% from a year earlier in April before rising 15% in May, 14% in June, and 7% in July.
About ANGI Homeservices ……
Angi Homeservices was created when Angie's List and HomeAdvisor joined forces through a merger in 2017. Angie's List and HomeAdvisor provide similar functionality with both providing services from a clogged drain to home remodeling. When I went through each site, they actually asked me identical questions before getting an instant (initial) quote on HomeAdvisor and a suggested & reviewed list of contractors to choose from on Angie's List.
Since the merger, this digitally conceived enterprise has broadened its portfolio of online service offerings with Handy in the fall of 2018 and Fixd Repair at the beginning of 2019. Both of these companies are home services-oriented and have extended Angi's synergy fueled customer reach.
This business is built on innovation and is continuously driven by fresh new ideas through acquisitions and organic additions. The company has a bright future in the post-pandemic world as society satisfies its home services needs through online platforms. Angi's leading positioning in this segment makes an attractive investment for the new normal.
ANGI Homeservices reported last Monday week with quarterly earnings of $0.02 per share, beating the Consensus Estimate of a loss of $0.01 per share. This compares to earnings of $0.01 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of 300%. A quarter ago, it was expected that this provider of a digital marketplace for home services would post a loss of $0.03 per share when it actually produced a loss of $0.02, delivering a surprise of 33.33%.
Over the last four quarters, the company has surpassed consensus EPS estimates three times.
ANGI Homeservices, which belongs to the Internet - Services industry, posted revenues of $375.06 million for the quarter ended June 2020, surpassing the Consensus Estimate by 5.79%. This compares to year-ago revenues of $343.90 million. The company has topped consensus revenue estimates three times over the last four quarters.
Ridenour said that on the consumer-demand side, “pretty much everything has recovered” though there’s been slower growth in indoor discretionary projects that require service workers to enter people’s home for non-essential work. Indoor remodeling has been “one of the hardest hit categories” due to the pandemic, according to Ridenour, and businesses there have been dealing with workforce challenges and supply-chain disruptions.
ANGI pulled back on marketing spending in the second quarter given weaker consumer demand at the start of the quarter, but Ridenour said that the company ultimate saw “very strong organic demand and very strong marketing efficiently” as demand rallied later in the period.
About 80% of ANGI’s costs are variable, according to Glenn Schiffman, the chief financial officer of IAC/InterActiveCorp., which has a majority economic interest in ANGI. “With rapid changes in revenue we can respond to that and protect our P&L,” referring to the company’s financial statements.
The company earned $12.7 million in the second quarter, or 2 cents a share, up from $7 million, or 1 cent a share, in the prior June quarter. Analysts expected a 1-cent loss per share on a GAAP basis.
ANGI has been rolling out fixed-price service offerings for months and has expanded the feature to 200 service categories. “The challenge for us is keeping up with the unprecedented spike in growth that we saw in the second quarter,” Ridenour said.
The enterprise is in the midst of closing a $500 million bond offering for 5-year notes at a rate of 3.875% (sold at face value), which will provide Angi Homeservices with liquidity for general operations and potential acquisition purposes.
The company is slowly but surely buying up their entire niche space. Its recent synergy driving purchases gives me confidence that Angi's savvy management team will discover some lucrative opportunities amid these highly uncertain market conditions.
The enterprise's businesses are snowballing domestically, and its European segment just turned an operational profit for the first time in its Q2 quarterly report, August 10th. Angi demonstrated a 9% year-over-year topline expansion, which was a marginal deceleration from prior quarters, but the company was able to appreciate its operating profits by 55% and profits by 82%, massively expanding its margins.
Angi Homeservice's ability to continue growing its topline and make the proper cost-cutting measures to produce this level of margin widening amid the worst economic recession in over a decade is a signal that this business could explode when normal economic conditions resume.
Ridenour said that ANGI is seeing ballooning interest from millennials who have become increasingly “home-oriented.” Overall, ANGI’s monthly active app users rose 80% in the second quarter from a year earlier, which he said was a positive sign as app users tend to have “stickier relationships” with the company and can benefit from better technological features, such as the ability to track service professionals when they’re on their way to a job.
The company rolled out a new payments platform in the second quarter, leveraging technology from Stripe, and intends to launch a financing option “in short order,” according to Ridenour, who said that “when people pay for service is exactly the right time to offer a compelling financing alternative for folks.”
Several analysts commented on the stock.....
Four equities research analysts have rated the stock with a hold rating, fourteen have given a buy rating and one has given a strong buy rating to the company’s stock. The stock has a consensus rating of “Buy” and a consensus price target of $14.33.
The pandemic has accelerated society's reliance on digital platforms by years in only a few months. The world is becoming conditioned to utilize online services, and Angi Homeservices portfolio of service offerings is well-positioned to take full advantage of this COVID fueled economic shift, which is already filling its sails with a robust tailwind.
ANGI Homeservices has a market capitalization of $7.68 billion, a P/E ratio of 325.83 and a beta of 2.16. The stock’s 50 day moving average is $14.74 and its 200-day moving average is $9.66. The company has a debt-to-equity ratio of 0.18, a current ratio of 2.06 and a quick ratio of 2.06.