“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, November 05, 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 – TJX Companies Inc. (The) (NYSE:TJX) Calls

Wednesday November 07, 2018

** OPTION TRADE: Buy the TJX JAN 18 2019 57.500 CALL at approximately $2.30. Place a pre-determined sell at $4.60.

Also include a protective stop loss of $0.90.

NOTE: TJX Companies’s stock split before the market opened on Monday, November 5th. The 2-1 split was announced on Monday, September 17th. The newly minted shares will be distributed to shareholders after the closing bell on Tuesday, November 6th.

Specialty retailer TJX Companies Inc. (The) (NYSE:TJX), an off-price apparel and home fashions retailer in the United States and across the world, seems to be one of the best stocks to come out of the retail sector.

For one thing, TJX stock has avoided the severe volatility impacting so many other competitors. For October, shares have dropped a little bit less than 3%, which is really nothing. The benchmark exchange-traded fund SPDR S&P Retail ETF (NYSEARCA:XRT) has fallen 6.5% during the same timeline.

Another factor that boosts TJX stock is the underlying company’s business. TJX specializes in off-season, discounted fashion and home goods. During an economic upheaval, everyday low pricing drives foot traffic into stores. Even during an economic upswing, very few people are going to turn down a good deal.

About TJX…..

The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of August 4, 2018, the end of the Company’s second quarter, the Company operated a total of 4,194 stores in nine countries, the United States, Canada, the United Kingdom, Ireland, Germany, Poland, Austria, the Netherlands, and Australia, and three e-commerce sites.

These include 1,236 T.J. Maxx, 1,077 Marshalls, 716 HomeGoods, 33 Sierra Trading Post, and 8 Homesense stores, as well as tjmaxx.com and sierratradingpost.com in the United States; 270 Winners, 120 HomeSense, and 79 Marshalls stores in Canada; 552 T.K. Maxx and 61 Homesense stores, as well as tkmaxx.com, in Europe; and 42 T.K. Maxx stores in Australia.

Past Performance…..

TJX has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 11.11%.

For the last reported quarter, TJX came out with earnings of $1.17 per share versus the Consensus Estimate of $1.05 per share, representing a surprise of 11.43%. For the previous quarter, the company was expected to post earnings of $1.02 per share and it actually produced earnings of $1.13 per share, delivering a surprise of 10.78%.

Future Earnings…..

Wall Street expects a year-over-year increase in earnings on higher revenues when TJX (TJX) reports results for the quarter ended October 2018. The earnings report is expected to be released on Tuesday, November 20, 2018, before the market opens.

This parent of T.J. Maxx, Marshalls and other stores is expected to post quarterly earnings of $1.21 per share in its upcoming report, which represents a year-over-year change of +21%.

Revenues are expected to be $9.47 billion, up 8.1% from the year-ago quarter.

The consensus EPS estimate for the quarter has been revised 0.07% higher over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

For TJX, the Most Accurate Estimate is higher than the Consensus Estimate, suggesting that analysts have recently become bullish on the company's earnings prospects. This has resulted in an Earnings ESP of +2.13%.

So, this indicates that TJX will most likely beat the consensus EPS estimate.

TJX has seen the biggest run-up of the retail group year to date, rising 42.8%.

Analysts Opinions

While retail has done well this year, the outlook is getting trickier, but discounters can still see gains, says Wells Fargo Ike Boruchow.

Like the rest of the market, retailers got knocked around in October, making the stocks more attractive, and traffic improved last month compared with a tough September (although at the cost of higher promotions).

Moreover, Boruchow thinks, the off-price model will remain more resilient than other segments of retail. He raised his estimates for TJX, and expects it to deliver beat-and-raise quarters and trade higher as “it exhibits defense, visibility and little tariff risk.”

Shares of TJX have received an average recommendation of “Buy” from the twenty-seven research firms that are currently covering the stock. One analyst has rated the stock with a sell recommendation, seven have given a hold recommendation and nineteen have assigned a buy recommendation to the company.

Summary

TJX Companies Inc has a 52 week low of $33.22 and a 52 week high of $56.64. The firm has a market capitalization of $67.75 billion, a price-to-earnings ratio of 27.30, and a price-to-earnings-growth ratio of 2.04 and a beta of 0.65. The company has a debt-to-equity ratio of 0.43, a current ratio of 1.64 and a quick ratio of 0.77.


Option Trade – Take-Two Interactive Software, Inc. (NASDAQ:TTWO) Calls

Monday November 05, 2018

** OPTION TRADE: Buy the TTWO JAN 18 2019 135.000 CALL at approximately $7.50. Place a pre-determined sell at $15.00.

Also include a protective stop loss of $3.00.

Take-Two Interactive Software, Inc. (NASDAQ:TTWO), an interactive gaming company that develops, markets and publishes entertainment solutions worldwide, has seen incredible growth in both its earnings and its sales over the last few years.

Take-Twois moving through what is expected to be a record year for the company. Even after a 600% rise over the last five years, investors continue to buy the shares based on expectations that new games and esports will continue to drive long-term growth for the game maker.

Take Two Interactive Software is scheduled to report second-quarter fiscal 2019 results on Wednesday November 07. The Consensus Estimate for third-quarter revenues is currently pegged at $548.6 million, while that for earnings stands at 91 cents per share.

And CEO Strauss Zelnick, almost never goes out on a limb, has repeatedly said “that this one would be a big winner." "So far, the game's off to a spectacular start. We're going to learn more about its staying power."

For second-quarter fiscal 2019, Take Two expects net bookings to be in the band of $500-$550 million. GAAP net revenues are expected in the range of $480-$530 million. NBA 2K, Grand Theft Auto Online and Grand Theft Auto V are expected to be major contributors.

The company beat the Consensus Estimate in the trailing four quarters, delivering average positive surprise of 26.95%.

In the last reported quarter, Take Two's earnings of 62 cents per share increased 11.3% from the year-ago quarter. The company's net revenues declined 7.2% from the year-ago quarter to almost $388 million

About Take-Two…..

Take-Two Interactive Software, Inc develops, publishes, and markets interactive entertainment solutions for consumers worldwide. The company offers its products under the Rockstar Games and 2K labels, as well as under Private Division and Social Point labels. It develops and publishes action/adventure products under the Grand Theft Auto, Max Payne, Midnight Club, and Red Dead names through developing sequels; and offers downloadable episodes, content and virtual currency, and releasing titles for smartphones and tablets.

Past Performance…..

GTA V has been instrumental to Take-Two's growth since its 2013 release. It's remarkable that this five-year-old game remains one of the top 10 best-selling titles in the industry. The game received new momentum following the Premium Online Edition that released in April.

Future Earnings…..

On a non- GAAP basis, Wall Street analysts expect Take-Two's revenue and earnings to be down 4.7% and 14.7%, respectively, over the year-ago quarter. Analysts expect adjusted revenue at the high end of management's guidance in the range of $500 million to $550 million.

The lower expected revenue is due to more games and content having been released in last year's second quarter as compared to this year, which will make for a difficult year-over-year comparison.

Looking further out, management anticipates revenue to be at least $2.5 billion for the full year, with free cash flow expected to be approximately $725 million. Analysts expect Take-Two's adjusted earnings per share to grow 37% in fiscal 2019, based primarily on robust sales of Red Dead Redemption 2.

Moving Forward…..

Rockstar Games -- the Take-Two studio that created Grand Theft Auto -- is launching its first title on current-generation game systems with Red Dead Redemption 2, which released last week. The game is expected to deliver record financial results for Take-Two in fiscal 2019 ending in March.

Influencing Factors…..

Take Two is increasingly benefiting from higher contribution of recurrent consumer spending to its total revenues. The company witnessed higher spending on its popular game offerings like Grand Theft Auto Online and NBA 2K18

Also, in first-quarter fiscal 2019, recurrent consumer spending accounted for 62% of revenues compared with 41% in the year-ago quarter.

As well, Take Two's net bookings from recurrent consumer spending also increased from 63% of total net bookings in the first-quarter fiscal 2019 as compared to 59% in first quarter fiscal 2018. Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18, Dragon City and Monster Legends, and WWE 2K18 were the major contributors.

Release of NBA 2K19 in second-quarter fiscal 2019 is expected to drive recurrent consumer spending and net bookings on the back of NBA 2K franchise success.

Also, NBA 2K18, the previous title of the franchise, was the highest-selling sports title in Take Two's history. The game sold more than 10 million units in the last reported quarter.

And, NBA 2K Online remains the leading PC online sports game in China with more than 37 million registered users. Banking on this success, Take Two launched the beta version of N BA 2K Online 2 in China in fiscal second-quarter 2019 in collaboration with Visual Concepts and Tencent.

As well, the inaugural season of Take Two's first e-sports league, NBA 2K League, held from Aug17-25, and garnered strong viewership on Amazon's Twitch - its streaming partner for the league.
During the first-quarter conference call, management said they were "very pleased" with how things went in the first year, including "growing viewership." They also said fan engagement was strong on Twitch, the popular game-streaming site.

Moving Ahead…..

While it likely won't reach the stratospheric levels of GTA, Red Dead Redemption 2 appears poised to become another smash hit for Take-Two. In addition to posting record-breaking initial sales, the game has near-perfect reviews, achieving 97% on review aggregator OpenCritic, as well as a Metascore of 97 on Metacritic.

Analysts Opinions

Take-Two Interactive Software has been given a $150.00 price objective by Wedbush in a research report issued last Tuesday. The brokerage presently has a “buy” rating on the stock. Wedbush’s price objective suggests a potential upside of 16.40% from the company’s previous close.

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

  • BidaskClub upgraded shares of Take-Two Interactive Software from a “hold” rating to a “buy” rating in a research report on Friday, September 14th.
  • Stifel Nicolaus raised their price objective on shares of Take-Two Interactive Software from $137.00 to $144.00 and gave the company a “buy” rating in a research report on Tuesday, September 11th.
  • Bank of America raised their price objective on shares of Take-Two Interactive Software from $143.00 to $151.00 and gave the company a “buy” rating in a research report on Thursday, August 30th.
  • Barclays set a $138.00 price target on Take-Two Interactive Software and gave the stock a “buy” rating in a report on Friday, August 3rd
  • Finally, Barclays set a $138.00 price objective on shares of Take-Two Interactive Software and gave the company a “buy” rating in a research report on Friday, August 3rd.

Five investment analysts have rated the stock with a hold rating and sixteen have given a buy rating to the stock. The company currently has a consensus rating of “Buy” and an average target price of $145.06.

Summary

The juggernaut that is GTA, recent releases like Red Dead Redemption 2 and the 20th-anniversary edition of the NBA 2K franchise -- NBA 2K19 -- as well as strong and continuing growth in recurrent consumer spending, all position Take-Two for a blockbuster year to come.






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