“Cut-to-the-Chase” Recommendations
- Week Beginning January 09, 2017 -

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.

Option Trade – Zayo Group Holdings Inc (NYSE:ZAYO) Calls

Friday, January 13, 2017

**OPTION TRADE: Buy the ZAYO FEB 17 2017 32.500 call at approximately $1.00. Sell price is left to your own judgment.

In trading last Thursday, shares of Zayo Group Holdings Inc (NYSE:ZAYO), a provider of bandwidth infrastructure in the United States, Canada and Europe, entered into oversold territory, hitting an RSI reading of 24.9, after changing hands as low as $29.30 per share. By comparison, the current RSI reading of the S&P 500 ETF (SPY) is 60.9.

This RSI reading seems to represent a sign that the recent heavy selling is in the process of exhausting itself, and it appears to be a good opportunity to be on the buy side.

Zayo Group Holdings last issued its earnings results on Tuesday, November 8th. The company reported $0.06 earnings per share (EPS) for the quarter, topping analysts’ consensus estimates of $0.05 by $0.01. Zayo Group Holdings had a negative return on equity of 0.93% and a negative net margin of 2.44%. The business earned $504.90 million during the quarter, compared to analysts’ expectations of $511.81 million. During the same quarter in the prior year, the firm earned ($0.06) EPS. The business’s revenue for the quarter was up 37.6% compared to the same quarter last year. On average, equities analysts expect that Zayo Group Holdings Inc. will post $0.31 earnings per share for the current year.

Zayo Group Holdings recently received a number of ratings updates from brokerages and research firms:

  •     12/14/2016 – Zayo Group Holdings had its “equal weight” rating reaffirmed by analysts at Morgan Stanley.
  •     12/12/2016 – Zayo Group Holdings is now covered by analysts at SunTrust Banks Inc.. They set a “buy” rating and a $39.00 price target on the stock.
  •     12/2/2016 – Zayo Group Holdings was downgraded by analysts at Moffett Nathanson from a “buy” rating to a “neutral” rating.
  •     12/1/2016 – Zayo Group Holdings had its price target raised by analysts at Royal Bank Of Canada from $34.00 to $38.00. They now have an “outperform” rating on the stock.
  •     12/1/2016 – Zayo Group Holdings had its “outperform” rating reaffirmed by analysts at RBC Capital Markets. They now have a $38.00 price target on the stock, up previously from $34.00.

The median one-year price target of 14 analysts covering the company is $38.00, which suggests the stock could still rise over 18 percent. The highest analyst price target is $41.00, which implies a rally of 68 percent. And a quick view of analyst notes show that 5 are rating the stock a buy while 5 rate ZAYO a strong buy. There are 5 equity research firms advocating a Hold and 0 consider it Sell.

Zayo Group Holdings, Inc. has a 50 day moving average price of $33.65 and a 200-day moving average price of $30.62. The stock’s market cap is $7.48 billion. Zayo Group Holdings, Inc. has a 52-week low of $19.59 and a 52-week high of $35.65.

Option Trade – Dicks Sporting Goods Inc. (NYSE:DKS) Calls

Tuesday, January 10, 2017

**OPTION TRADE: Buy the DKS FEB 17 2017 57.500 call at approximately $0.95. Sell price is left to your own judgment.

Last Thursday saw the retail sector obliterated after Kohl’s KSS – NYSE lowered its full-year 2017 earnings guidance – which has left a great bottom for underpriced retail stocks.

Dicks Sporting Goods Inc. (NYSE:DKS), an omni-channel sporting goods retailer offering an assortment of sports equipment, apparel, footwear and accessories in its specialty retail stores in the eastern United States, fits right into this category. Dicks recovered Friday but pulled back again yesterday allowing a good entry for this options trade.

The next earnings report will be on March, 14. Analysts expect $1.30 earnings per share, up 15.04% or $0.17 from last year’s $1.13 per share. DKS’s profit will be $148.91 million for 10.58 P/E if the $1.30 EPS becomes a reality. After $0.48 actual earnings per share reported by Dicks Sporting Goods Inc for the previous quarter, Wall Street now forecasts 170.83% EPS growth.

Wall Street came up with price targets ranging from $50 to $75. This is a standard deviation of $5.204. The 22 analysts used projected a consensus target of $63.681. This was last revised on the 3rd January, 2017.

Out of 24 analysts covering Dick’s Sporting Goods Inc., 16 rate it a “Buy”, 0 “Sell”, while 8 “Hold”.

Canaccord Genuity reiterated their buy rating on shares of Dick’s Sporting Goods Inc. in a research note issued to investors last Wednesday. They currently have a $70.00 target price on the sporting goods retailer’s stock.

Also, a number of hedge funds have recently made changes to their positions in the stock. Price T Rowe Associates Inc. MD raised its stake in shares of Dick’s Sporting Goods by 2,269.5% in the third quarter. Price T Rowe Associates Inc. MD now owns 4,808,507 shares of the sporting goods retailer’s stock valued at $272,739,000 after buying an additional 4,605,573 shares in the last quarter.

Dick’s Sporting Goods Inc.’s 50-day moving average is $57.49 and its 200 day moving average is $55.31. Dick’s Sporting Goods Inc. has a 52-week low of $33.44 and a 52-week high of $62.88. The stock has a market capitalization of $6.06 billion, a P/E ratio of 18.63 and a beta of 0.71.

Dicks Sporting Goods Inc. has risen 28.35% since June 3, 2016 and is up-trending. It has outperformed by 19.87% the S&P500.

Option Trade – Delta Air Lines, Inc. (NYSE:DAL) Calls

Tuesday, January 10, 2017

**OPTION TRADE: Buy the DAL FEB 17 2017 55.000 call at approximately $0.45. Sell price is left to your own judgment.

Airline stocks topped gainers in the U.S. industrial sector ion Monday as analysts prepped for the industry's first earnings report due this week from Delta Air Lines, Inc. (DAL).

Delta Air Lines, Inc (DAL) is scheduled to report fourth-quarter 2016 results on Jan 12, 2017, before the market opens. The consensus calls for earnings of $0.80 per share, down from $1.18 during the same period last year. The stock is down a modest 1.4% over the last twelve months.

This Atlanta, GA-based carrier reported better-than-expected earnings in the third quarter of 2016. In fact, the carrier outpaced earnings estimates in three of the last four quarters with an average earnings beat of 2.01%.

Delta last week said it expects Q4 unit revenue to fall 2.5%-3%, an improvement from a decline of around 3% the carrier projected last month. However, Delta said it expects non-fuel unit costs, including profit-sharing, to jump around 10% due to a new contract with pilots.

Unit revenue measures an airline's revenue as it relates to its overall supply of seats on planes and flight coverage. Analysts largely expect the key metric to turn positive this year as post-election travel demand firms up and rising fuel and labor expenses force airlines to pull back on their expansion plans and pass more costs onto customers.

The gains follow news last week that the airline industry seems to be headed for positive passenger revenue per available seat mile. "Positive RASM has been achieved," J.P. Morgan analyst Jamie Baker wrote Wednesday, in a report issued after Delta reported better-than-expected December RASM.

Baker said RASM figures provided by Airlines for America showed flat international RASM and a 0.1% domestic RASM increase. Including regional carriers, consolidated RASM rose 0.2%, "the first instance of positive RASM in 23 months," Baker said.

Factors to Consider

Delta posted impressive traffic results for December with an increment in load factor. Moreover, the company’s completion factor and on-time performance was commendable.

There is plenty of positive reaction on the company’s initiation of flight services to Cuba.

The company’s shareholder returns policy and its efforts to finalize important employee contracts are impressive.

The company also expects Passenger Revenue per Available Seat Mile (PRASM) to decline in the range of 2.5% to 3% for the fourth quarter from the earlier guidance of a decline of 3% to 5% issued in Oct 2016.

The company’s stock has outperformed the broader categorized Transportation-Airlines industry. The company gained 30.33%, while the industry gained 29.43% over the same period.

Analysts Opinions

Delta Air Lines have received an average rating of “Buy” from the twenty-one brokerages that are currently covering the company. One investment analyst has rated the stock with a sell recommendation, five have assigned a hold recommendation and fifteen have issued a buy recommendation on the company. The average 1-year price objective among brokerages that have issued a report on the stock in the last year is $53.97.

"After Delta's latest guidance, we believe the expectation is for unit revenue guidance to move higher," Cowen analyst Helane Becker said in a research note on Monday. "Despite improving revenue trends, we expect little change to margin guidance as jet fuel continues to rise."

Delta shares were virtually unchanged at 49.69 in the stock market yesterday and were still within buy range of a 49.51 cup-with-handle entry.

Delta and Southwest were the only airlines not to be downgraded by Cowen last week. The firm said many of Delta's difficulties were in the past and that it could be among the biggest beneficiaries of improving airfare trends in business travel.

Delta and other airline stocks have rallied since the fall as the industry tightens up on capacity growth and as demand strengthens. But the stocks have lost some steam in recent weeks, and analysts expect the sector could take a break from its massive run-up in the coming months.

"Airline stocks as a group have outperformed the S&P 500 by 47% since Brexit. Something is priced in," Wolfe Research analyst Hunter Keay said in a research note last week. "And while history suggests we could be entering a three, or even six, month cooling off period ... , the 2017 outlook for DAL and this group is more encouraging by the day."


Delta Air Line’s 50-day moving average price is $49.62 and its 200 day moving average price is $41.62. The stock has a market cap of $37.04 billion, a P/E ratio of 8.12 and a beta of 0.92. Delta Air Lines has a 12-month low of $32.60 and a 12-month high of $52.76.