“Armchair Trader Series”  Recommendations
- Week Beginning -
Monday, November 13, 2017

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


Option Trade - Splunk Inc. (NASDAQ:SPLK) Calls

Wednesday, November 15, 2017

** OPTION TRADE: Buy the SPLK DEC 15 2017 70.000 CALL at approximately $2.50. Place a pre-determined sell at $5.00.

Also include a protective stop loss of $1.00.

The data analytics software provider Splunk Inc. (NASDAQ:SPLK), reports Q3 results after the market closes Thursday. The consensus on EPS is 14 cents, up 17%, on revenue growth of 27% to $310 million.

Last quarter, the company's non-GAAP earnings surged 60% year over year to 8 cents per share and beat the Consensus Estimate of 6 cents. In the trailing four quarters, the company has delivered an average positive surprise of 54.44%.

Two quarters ago, SPLK was expected to post a loss of 5 cents per share, while it actually produced loss of a penny per share, a beat of 80%. Meanwhile, for the most recent quarter, the company looked to deliver 6 cents per share, when it actually saw 8 cents per share instead, representing a 33.3% positive surprise.

Revenues in the second quarter increased 31.6% year over year to $279.9 million and beat the Consensus Estimate of $268.7 million.

Shares of Splunk have gained 32.5% year to date, outperforming the 29.2% rally of the industry it belongs to.

Shares broke out over the past week and are holding just above a 69.71 entry. Also, on Thursday, Splunk received a positive adjustment to its Relative Strength ( RS ) Rating , from 69 to 77.

Recent estimates have been moving higher for Splunk. In fact, the Earnings ESP for SPLK is positive, which is a great sign of a coming beat.

Splunk Inc. has a 52 week low of $50.64 and a 52 week high of $71.46.

Influencing Factors

Splunk's focus to strengthen its product pipeline in order to benefit from the growing data and analytics market is expected to be a key growth driver. The company's market opportunity is growing on the back of its software, which is traditionally used for IT operational intelligence, security, fraud-detection, app analytics and other related cases.

Splunk announced a number of new and updated versions of existing products in the third quarter, which include Splunk Enterprise 7.0, Splunk IT Service Intelligence (ITSI) 3.0 and Splunk User Behavior Analytics (UBA) 4.0. We believe this will help it to expand its customer base. The company's continuous updates to Splunk Cloud are also a positive.

Moreover, Splunk also acquired some assets of San Francisco, CA-based Rocana last month. The acquisition is expected to enhance Splunk's machine learning capabilities and data management platform.

We note that Splunk is well poised to benefit from the ongoing shift to modern analytics-based security information and event management (SIEM) from a traditional structured data legacy-based one, which drove large security orders for the company.

Splunk Insights for Ransomware launched in the second quarter is a step toward that direction. The company also unveiled updates to fraud and cloud monitoring solutions in the soon-to-be reported quarter.

Analysts and Hedge Funds Opinions

KeyCorp restated their buy rating on shares of Splunk Inc. in a research report sent to investors recently.

As well, Zacks Investment Research upgraded shares of Splunk Inc. from a hold rating to a buy rating in a report released recently. They currently have $74.00 price objective on the software company’s stock.

According to Zacks, “Splunk Inc. provides a software platform, which collects and indexes data and enables users to search, correlate, analyze, monitor and report on this data, all in real time. Its software is designed to help users in various roles, including IT and business professionals. Splunk Inc. is based in San Francisco, California. “

Also, Needham recently initiated coverage on Splunk with a buy rating and price target of $95, a premium of more than 30%, saying Splunk is an industry leader with strong products.

Also, several other equities analysts have recently commented on the company…..

  • Drexel Hamilton reiterated a buy rating and issued a $93.00 target price on shares of Splunk in a research note on Thursday, July 13th.
  • Royal Bank Of Canada reiterated a “buy” rating and issued a $75.00 target price on shares of Splunk in a research note on Monday, July 31st.
  • BMO Capital Markets reiterated an “outperform” rating and issued a $69.00 target price (down previously from $71.00) on shares of Splunk in a research note on Friday, August 4th.
  • Canaccord Genuity reiterated a buy rating and issued a $80.00 target price (up from $75.00) on shares of Splunk in a research note on Tuesday, August 22nd.
  • Finally, Cowen and Company reiterated a “buy” rating on shares of Splunk in a research note on Friday, August 18th.

One equities research analyst has rated the stock with a sell rating, eleven have assigned a hold rating and twenty-seven have given a buy rating to the company’s stock. The company presently has a consensus rating of “Buy” and an average target price of $74.00.

Institutional investors that have recently made a change to their positions in the stock….

  • Xact Kapitalforvaltning AB lifted its holdings in Splunk by 0.3% during the 2nd quarter. Xact Kapitalforvaltning AB now owns 18,241 shares of the software company’s stock worth $1,038,000 after buying an additional 62 shares during the last quarter.
  • Aperio Group LLC lifted its holdings in Splunk by 1.3% during the 2nd quarter. Aperio Group LLC now owns 13,005 shares of the software company’s stock worth $740,000 after buying an additional 164 shares during the last quarter.
  • Chevy Chase Trust Holdings Inc. lifted its holdings in Splunk by 0.6% during the 2nd quarter. Chevy Chase Trust Holdings Inc. now owns 30,039 shares of the software company’s stock worth $1,709,000 after buying an additional 175 shares during the last quarter.

Harvey’s Options Volatility Indicator

Summary

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the SPLK DEC 15 2017 70.000 CALL at approximately $2.50. Place a pre-determined sell at $5.00.

Also include a protective stop loss of $1.00.






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