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.
Friday, 19 February, 2016
Option Trade – Barrick Gold Corporation (USA) (NYSE:ABX) Calls
**OPTION TRADE: Buy the ABX Mar 2016 14.000 call (ABX160318C00014000) at approximately $0.40. Sell price is left to your own judgment.
Gold continues to push higher, and finally the rally might have some legs.
And Barrick Gold Corporation (USA) (NYSE: ABX), an operator of mines and advanced exploration and development projects, that has suffered for years as ill-timed acquisitions and a bigger-at-all-costs mentality saddled the balance sheet with massive debt just as the gold and copper markets prepared to roll over, may finally be on the road to a recovery!
The past has seen Barrick Gold Corporation with years of write-downs and a plummeting stock price. Barrick traded for $50 per share five years ago. Last September it dropped below $6.
In early 2015 Barrick’s new management team launched an ambitious strategic overhaul. The company cut staff, slashed expenses, and committed to reducing the US$13 billion debt pile by US$3 billion before the end of the year.
Few pundits believed Barrick would hit the target given the weakness in the gold sector and the company’s track record of mismanagement. To the market’s surprise Barrick pulled it off and the Q4 report showed Barrick beating analysts' expectations of cash costs and gold sales. Analysts also expressed surprise at the speed at which costs were reduced in the last quarter of 2015. The company still has work to do to improve the balance sheet, but all-in sustaining costs (AISC) dropped to US$771 per ounce in Q3 2015, and free cash flow in the quarter hit US$256 million. That’s pretty good given the market conditions.
The actual report showed adjusted net earnings of $91 million and earnings per share (EPS) of $0.08 for the fourth quarter of 2015 (4QFY15), beating analysts’ estimates of $71.01 million and $0.06. Annual adjusted net earnings were $344 million, resulting in a yearly adjusted EPS of $0.30. Quarterly revenue was $2.24 billion, again higher than expected, leading to yearly revenues of $9.03 billion. The firm also generated positive free cash flow of $387 million in the quarter.
On the ratings front, Barrick Gold has been the subject of a number of recent research reports. Citigroup analyst Brian Yu assigned a Buy rating on ABX, and separately, Jeffries analysts have reiterated their Hold rating following the report, but changed their target price upwards.
Analysts are also upbeat about the firm pursuing an aggressive debt reduction strategy by selling assets, having reduced it by $3.1 billion in FY15 and planning reductions of at least $2 billion for this year.
Also, Deutsche Bank commented on the firm’s $3.1 billion in impairment charges and believes that this may be the last write-down of gold assets by Barrick for the foreseeable future. As well, the analysts reiterated a Buy rating.
Gold has surged about US$170 per ounce since mid-December, which would translate into an extra US$1 billion in cash flow this year if the price gains hold.
The company has a market capitalization of about US$14 billion.
Thursday, 18 February, 2016
Option Trade – Dean Foods Co (NYSE:DF) Calls
**OPTION TRADE: Buy the DF Mar 2016 22.000 call (DF160318C00022000) at approximately $0.65. Sell price is left to your own judgment.
Dean Foods Co (NYSE: DF), a food and beverage company, is slated to report fourth-quarter 2015 results on February 22nd before the market opens. In the last quarter, the company had delivered a positive earnings surprise of 20%.
As the S&P 500 continues to rebound off of support at 1,825, traders are continuing to turn their attention to food companies and other defensive stocks, which bode well for Dean Foods.
Dean Foods’ ongoing strategic initiatives focused on improving core business activities, cost productivity and creating a balance between pricing and volumes, position it well to generate enhanced returns.
Additionally, with a solid operating performance, improved capital structure and additional benefits anticipated from its latest DailyPure brand as well as the popular TruMoo brand, the company remains on track to consolidate its position in the dairy industry, and boost shareholder value. Also, Dean Foods is optimistic about its prospects, as it anticipates the general commodity environment to remain favorable. Considering all the aforementioned factors, management expects fourth-quarter adjusted earnings to range from 28–38 cents a share.
Analysts at Bernstein recently upgraded the stock from “Market Perform” to “Outperform” thanks to improving demand and margins. Demand for milk-based products has been increasing at the same time that wholesale milk prices have been dropping. This is a great combination for DF and its “Land O Lakes,” “TruMoo” and other brands.
Dean Foods isn’t going to hit any real resistance until $21.50 — a resistance level established in May 2013. It is anticipated that the stock will continue to rise in the days ahead, ultimately challenging the highs it established in 2013 around $22.62.
Thursday, 18 February, 2016
Option Trade – Wal-Mart Stores, Inc. (NYSE:WMT) Puts
**OPTION TRADE: Buy the WMT Mar 2016 60.000 put (WMT160318P00060000) at approximately $0.65. Sell price is left to your own judgment.
Wal-Mart Stores, Inc. (NYSE: WMT), which is engaged in the operation of retail, wholesale and other units in various formats around the world, kicked off retail earnings season before the opening bell today, when it released fourth quarter of fiscal 2016 (4QFY16) results. The brick and mortar retail behemoth was able to deliver stronger-than-expected earnings, despite the continued pessimism surrounding its prospects. Revenues disappointed, and fell behind the analysts’ expectations.
The company posted $1.49 in adjusted earnings per share (EPS), which reflects a considerable 6.2% year-over-year (YoY) decline from $1.61 last year; however, analysts expected much worse, as they estimated $1.46.
Revenue lagged behind the Street’s $130.59-billion forecast, as it clocked in at $129.67 billion. This depicts a worse-than-expected 1.44% fall from last year’s comparable quarter, when it reported $131.57 billion.
In order to alleviate the rising operational expenditures, Wal-Mart has directed its focus to fleet optimization. This includes closure of 269 stores globally, with more than half of these in the US alone.
Wal-Mart has several weaknesses, including a generally disappointing performance in the stock itself, poor profit margins and feeble growth in the company's earnings per share.
Thursday, 18 February, 2016
Option Trade – NetApp Inc. (NASDAQ:NTAP) Puts
**OPTION TRADE: Buy the NTAP Mar 2016 21.000 put (NTAP160318P00021000) at approximately $0.35. Sell price is left to your own judgment.
NetApp Inc. (NASDAQ: NTAP), engaged in providing software, systems and services to manage and store customer data, reported mixed results for the January quarter, with revenue of $1.39bn, representing a decline of 10.7 percent Y/Y, and EPS of $0.70, missing the consensus estimates of $0.63. The company delivered a beat in gross margin, which came in at 63.1 percent, as compared to the consensus estimate of 61.9 percent.
NetApp’s April quarter guidance points towards a “dark, lonely road ahead”, according to analysts. The company guided to revenue of $1.35-$1.50bn, representing a decline of 7.4 percent Y/Y decline at mid-point and missing the consensus estimate of $1.47bn and consensus expectation of $1.51bn.
The guidance for non-GAAP EPS of $0.55-$0.60 was also short of the estimate of $0.68 and consensus expectation of $0.73.
The view is that the magnitude of the earnings reset, alongside deteriorating product revenue growth, aggressive pricing, and more morale-busting job cuts (12% of workforce), suggests NetApp's struggles will persist.
Analysts also expressed concern regarding the storage market, saying that it could be negatively impacted by high cloud displacement risk and tough pricing conditions, as vendors chase growth in flash-based solutions to counter challenges in legacy products.
The EPS estimates for the current fiscal year and the next fiscal year have been reduced from $2.20 to $2.16 and from $2.44 to $2.18, respectively.
Barclays’ Mark Moskowitz maintained an Underweight rating for the company, while reducing the price target from $25 to $23.
Also, brokerage firm Atlantic Equities downgraded its rating on NetApp Inc on Feb 12, 2016. The shares have been rated Underweight. Previously, the analysts had a Neutral rating on the shares. Despite staging a small recovery last month, NetApp Inc. shares are down 25 percent since November 18.
Tuesday, 16 February, 2016
Option Trade – Rackspace Hosting, Inc. (NYSE:RAX) Calls
**OPTION TRADE: Buy the RAX Mar 2016 20.000 call (RAX160318C00020000) at approximately $0.80. Sell price is left to your own judgment.
Rackspace Hosting, Inc. (NYSE: RAX), operating in the managed cloud segment of the business information technology (IT) market, will post its Q415 quarterly earnings results today, Tuesday, February 16th. Analysts expect Rackspace Hosting to post earnings of $0.23 per share and revenue of $521.53 million for the quarter.
According to Zacks, “As the world’s leader and specialist in hosting, Rackspace Hosting is changing the way businesses worldwide buy IT. Rackspace delivers computing-as-a-service, integrating the industry’s best technologies into a flexible service offering, making computing more reliable and affordable. A trusted partner to companies of all sizes, Rackspace enables IT departments to be more effective. Rackspace is distinguished by its award-winning Fanatical Support, furthering the company’s mission to be one of the world’s greatest service companies. Rackspace featured in the top 30 of both the Sunday Times 100 Best companies to work for list and the Financial Times Great Place to Work Awards, 2008. Rackspace’s portfolio of hosted services includes managed hosting, email hosting and cloud hosting“.
Out of 18 analysts covering Rackspace, 13 rate it “Buy”, 2 “Sell”, while 7 “Hold”.
Blue Harbour Group L.P. holds 8.74% of its portfolio in Rackspace Hosting, Inc. for 11.36 million shares. Omt Capital Management Llc owns 108,710 shares or 3.27% of their US portfolio. Moreover, Parametrica Management Ltd has 3.04% invested in the company for 19,582 shares. The Pennsylvania-based Barton Investment Management has invested 1.65% in the stock. Diker Management Llc, a New York-based fund reported 294,820 shares.
Rackspace Hosting, Inc. closed at $17.63 on Friday. The firm has a 50-day moving average of $20.98 and a 200-day moving average of $26.63. Rackspace Hosting, Inc. has a 52 week low of $16.38 and a 52 week high of $56.20. The company has a market capitalization of $2.26 billion and a PE ratio of 18.22.