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 – Nike Inc. (NYSE:NKE) Calls
Friday, March 17, 2017
** OPTION TRADE: Buy the NKE APRIL 21 2017 60.000 call at approximately $0.75. Sell price is left to your own judgment.
Nike Inc. (NYSE: NKE), a seller of athletic footwear and athletic apparel worldwide, is slated to report third-quarter fiscal 2017 results after the closing bell on Mar 21.
In the last quarter, the company posted a positive surprise of 16.3%. In fact, it has delivered an average positive earnings surprise of 15.8% in the trailing four quarters. Nike's bottom-line beat the Consensus Estimate in each of the last four quarters.
Nike mainly sells under two brands: Nike and Converse. The Nike brand is the most important and accounts for ~95% of the company’s total business. Nike brand sales continued to show momentum during the first half of the year and grew 10% and 8% in Q1 and Q2. Direct-to-customer revenues were particularly impressive with 22% and 23% increases during the two quarters. Growth is primarily driven by strength in the overseas markets.
The nike.com website had a strong quarter, growing more than 45% during 1H17. Sales comps were also impressive and jumped 8% and 11% in Q1 and Q2.
Influencing Factors to Consider
Nike's earnings surprise history remains impressive, backed by constant focus on capitalizing on growth opportunities and efficient risk management. The company has delivered positive earnings surprises for 18 straight quarters, while the top line surpassed estimates in the last two quarters.
The top line beat in the last two quarters can primarily be attributable to constant innovations, efficient supply chain, a great sync between digital and physical worlds and strategic investments. Notably, the company's second-quarter fiscal 2017 sales came on the back of eCommerce growth as well as a revival in basketball shoes category. Further, the rebound in the basketball shoes category positions the company well to tackle competition from peers in 2017.
Moreover, Nike's stock performance reveals that the company has outperformed the broader industry in the last three months. The stock improved 12.5% in the past three months, outpacing the Zacks Categorized Shoes & Retail Apparel industry's growth of 9.1% in the same period.
The company’s footwear business, which
accounts for 60% of its total sales, grew 6% YoY in 1H17. Apparel sales were
also robust and improved 8% during the period.
Sportswear, running, and basketball were
the best-performing categories. While sportswear posted its 12th consecutive
quarter of double-digit growth, running, Nike’s largest performance category,
also recorded a double-digit increase.
Basketball, Nike’s most-talked-about and
successful segment, gained back the momentum it had lost over the last year.
Tough competition from Under Armour’s (UAA) Curry series had put a lot of pressure
on Nike’s basketball segment.
To revive sales, the company redesigned
and relaunched several of its shoes that had failed to click with customers.
Based on the stout second quarter performance, the management has predicted
that Nike’s basketball segment will return to growth in the second half of
Analysts and Hedge Funds Opinions
UBS reiterated its Buy rating on Nike
Inc. Analyst Michael Binetti expects Nike to report EPS of $0.51, global
revenues up 5 percent and futures growth of 2 percent. He projects NA revenues
to increase 1.7 percent.
“Closeouts” could remain a 30bp drag (suspended MAP to clear inventory), we
believe lower clearance at outlets should allow the DTC impact to GMs to
improve from flat YOY in F2Q to the LT 30-40bp lift,” Binetti wrote in a note.
Looking ahead, the analyst expects Nike
to reiterate FY2017 revenue outlook at low end of +HSD/LDD.
Importantly, the analyst believes
initial FY2018 guidance will also point to the low end of the LT algorithm for
+HSD/LDD revenue growth, driven by potential uptick in unit growth at
factories, premium pricing and big DTC push.
Further, Binetti sees gross margins should expand by the first quarter, given lower markdowns, less FX pressure, and lapping of FY2017 gross margin accounting rebase.
The analyst also raised his price target to $67 from $61 as he believes Nike’s challenges are temporary and cleaner inventories in the full price channel should help reverse recent gross margin headwinds.
Moreover, Binetti still believes the company can deliver at least the low end of its +HSD/+LDD long-term revenue growth target.
“With rev growth potentially bottoming & a believable +mid-teens EPS algo, we think NKE’s P/E can start to re-expand. Reiterate Buy,” Binetti added.
Three research analysts have rated the stock with a sell rating, twelve have assigned a hold rating and twenty-two have issued a buy rating to the company. The stock currently has an average rating of “Buy” and an average price target of $62.09.
Three months ago, Nike's full-year forecast called for 2017 sales gains in the high single-digit range -- paired with slowly rebounding margins. The profit half of that prediction is easier to achieve considering the stronger inventory position it entered the holiday season with compared to what it carried six months before. Earnings should also continue to benefit from Nike's cost-cutting program and the fast-growing direct-to-consumer sales channel.
There's likely to be a surprise on the revenue side. If Nike's portfolio of apparel and footwear products resonated with customers in key markets over the holiday season, then the company likely captured valuable market share from rivals while making progress toward a sales growth rebound.
Nike Inc has a market cap of $95.40 billion, a price-to-earnings ratio of 25.42 and a beta of 0.44. The company has a 50-day moving average price of $55.73 and a 200-day moving average price of $53.41. Nike Inc has a 12 month low of $49.01 and a 12 month high of $65.44.
Option Trade – Tiffany & Co. (NYSE:TIF) Calls
Thursday, March 16, 2017
** OPTION TRADE: Buy the TIF APRIL 21 2017 95.000 call at approximately $1.20. Sell price is left to your own judgment.
Luxury jeweler Tiffany & Co. (NYSE:TIF) has been a top performer since last summer, with the stock currently trading just shy of its 52-week high. The stock has a chance to build on its recent gains and hit a new 52-week high when it posts its fiscal fourth-quarter results March 17. The company will post its quarterly numbers before the market open, with the consensus calling for earnings of $1.37 per share, down from $1.46 during the same period last year.
It has been a mixed earnings season for retailers, but higher-end retailers such as Tiffany have done pretty well. Tiffany has good earnings track record, posting better than expected results the last couple of quarters, and it is expected that another decent report for Q4, with a whisper number that is in-line with the overall consensus.
Tiffany's omni-channel platform, store expansion programs, tapping of new markets and venturing into new revenue generating avenues may help improve performance, as evident from back-to-back positive earnings surprises in the second and third quarters. These facilitated the stock to outpace the industry in the past six months. In the said time frame, the stock has surged 23%, while the categorized Retail-Jewelry Stores industry has advanced 7.5%.
Tiffany shares have risen almost 15% this year.
Influencing Factors to Consider
1. Tiffany is succeeding in its efforts to revive customer interest in fashion jewelry. The reinvigoration of fashion jewelry is underway, and is beginning to show in the numbers.
Last quarter, fashion jewelry posted a modest increase year-over-year and sterling silver stabilized with sales up slightly due to the popularity of the Return to Tiffany Love Collection.
2. Tourists have long been a major source of sales for Tiffany, accounting for about 25% of total US sales and 40% of sales in its flagship New York store.
While challenges exist on the tourism front, travel and spending data indicate trends are stabilizing or improving. Total international passengers traveling to the US increased +1.0% y/y for the most recent fiscal quarter measured.
3. Despite competition, Tiffany has built a strong brand with enough pricing power to protect margins. Given the market that Tiffany operates in, along with a strong brand that affords significant pricing power, the company is not susceptible to Amazon or Walmart.
4. Tiffany also trades below peers both on a P/E and EV/EBITDA basis.
5. Tiffany is an earnings short-squeeze prospect. The current short interest as a percentage of the float for Tiffany & Co. stands at 9.1%. That means that out of 123.43 million shares in the tradable float, 11.23 million shares are sold short by the bear.
6. A management shakeup is producing the turnaround they've been waiting for. Cumenal announced in February that he's stepping out of the chief executive role just as the board of directors welcomed three new members.
Analysts and Hedge Funds Opinions
Tiffany & Co.‘s stock had its “positive” rating reaffirmed by equities research analysts at Jefferies Group LLC in a report issued on Wednesday. They presently have a $102.00 price objective on the stock. Jefferies Group LLC’s price objective suggests a potential upside of 14.44% from the company’s current price.
"With a strong brand that has supported pricing power historically coupled with recent and future talent upgrades, we believe shares can still rise from here," said a team of Jefferies analysts led by Randal J. Konik.
Eleven research analysts have rated the stock with a hold rating, fourteen have given a buy rating and one has assigned a strong buy rating to the stock.
TIF shares have been strong in 2017, and if while earnings are forecast to drop from the same period last year, that earnings drop has already been priced into the stock, which should continue to trend higher.
Tiffany & Co. has a market cap of $11.09 billion, a P/E ratio of 24.96 and a beta of 1.89. Tiffany & Co. has a 12 month low of $56.99 and a 12 month high of $92.74. The company’s 50-day moving average is $84.69 and its 200-day moving average is $78.10.
Option Trade – Oracle Corporation (NYSE:ORCL) Calls
Wednesday, March 15, 2017
** OPTION TRADE: Buy the ORCL APRIL 21 2017 45.000 call at approximately $0.23. Sell price is left to your own judgment.
Oracle Corporation (NYSE:ORCL), a provider of products and services that address all aspects of corporate information technology (IT) environments, including application, platform and infrastructure, is expected to show ongoing progress in its transition to cloud services when it reports fiscal third-quarter earnings after the close Wednesday.
The consensus is for the enterprise software giant to report adjusted earnings of 62 cents a share, down 3% from a year ago, and a revenue increase of 3% to $9.25 billion. While fiscal second-quarter revenue missed estimates in December, Oracle showed continued progress in its transition to the cloud.
This will be the first time Netsuite's full quarterly results are included in the report after Oracle acquired the cloud software company for $9.3 billion in November.
Software-as-a-service and platform-as-a-service unadjusted revenue jumped 87% to $912 million, as total cloud revenue reached $1.1 billion. In January, Oracle's CloudWorld conference also got positive reviews from analysts.
During Oracle's 2017 second quarter conference call, founder Larry Ellison claimed that the company could book over $2 billion in annual cloud sales for the year. In addition, CEO Mark Hurd said, "Q3 has a chance to be our best quarter ever, period."
Jefferies said in a note on Monday that it's expecting the company to follow through on its claims by delivering stronger-than-expected cloud bookings. Drexel released a similarly upbeat note, saying "Oracle began pushing aggressively into the cloud, negatively impacting sales and EPS along the way; however, we believe the worst of this cloud transition is over and we expect Oracle will return to annual EPS growth in FY:18 for the first time since FY:14."
Analysts and Hedge Funds Opinions
Three years ago, Oracle began pushing aggressively into the cloud, negatively impacting sales and earnings along the way, wrote Drexel Hamilton analyst Brian White in a research note.
"However, we believe the worst of this cloud transition is over," White wrote. White has a buy rating on Oracle and price target of 47.
Rosenblatt Securities analyst Marshall Senk has a buy rating on Oracle and price target of 48. RBC Capital Markets last week raised its price target on Oracle to 46 from 43, with an outperform rating.
According to analyst ratings on FactSet, the company currently has 22 buy ratings, 12 hold ratings and 1 sell rating.
Oracle has a 12-month low of $37.62 and a 12-month high of $43.26. The firm’s 50-day moving average price is $41.41 and its 200 day moving average price is $39.89. The stock has a market capitalization of $174.68 billion, a P/E ratio of 20.32 and a beta of 1.14.
Option Trade – Sirius XM Holdings Inc. (NASDAQ:SIRI) Calls
Tuesday, March 14, 2017
** OPTION TRADE: Buy the SIRI APRIL 21 2017 5.500 call at approximately $0.15. Sell price is left to your own judgment.
While Sirius XM Holdings Inc. (NASDAQ:SIRI) is only $5.44, the company is valued at $24.5 billion dollars. And so far this year, shares are up 35%.
Also, since the last earnings report for Sirius about a month ago, shares have added about 7.5% in that time frame, outperforming the market. And this recent positive trend is expected to continue leading up to the stock's next earnings release.
Sirius XM reported fourth-quarter 2016 financial numbers wherein the bottom line met the Consensus Estimate while the top line surpassed the same. Earnings were in line with the Consensus Estimate of $0.04 per share but improved on a year over year basis. Total revenue of $1.3 billion grew 9% year over year and also surpassed the Consensus Estimate of $1.28 billion. Subscriber revenues grew 8.5% to $1.1 billion. Advertising revenues climbed 16.2% to $38.9 million. Equipment revenues climbed 5.6% while revenues from other sources increased 10.7%. Operating expenses climbed 7.9% to $973.4 million in the reported quarter. The company added over 1.75 million net new subscribers in2016, ending the year with approximately 31.3 million subscribers. Self-pay net subscriber additions in 2016 were 1.66 million. Annual revenue increased 10% to a record $5 billion on the back of a 6% increase in subscribers and a 3% increase in average revenue per user.
Adjusted EBITDA climbed 13% in 2016 to touch a record of $1.88 billion. The company expects Self-pay net subscriber additions of approximately 1.3 million in 2017. Revenues in 2017 are expected at approximately $5.3 billion. Adjusted EBITDA and free cash flow are projected at approximately $2.025 billion, and $1.5 billion respectively.
As well, billionaire investor Warren Buffett, who prefers strong cash flow, sees plenty to like about this company.
Influencing Factors to Consider
CEO Jim Meyer and his executive team are forecasting another year of records in 2017 as the business adds 1.3 million paying subscribers and achieves solid growth in average revenue per user. Together, these trends should push adjusted earnings to $2 billion -- up from $1.88 billion last year. Investors should also see another year of solid free cash flow generation, along with hefty returns to shareholders in the form of stock repurchases and dividends. If Sirius XM continues improving its content portfolio while making smart investments in its satellite network, its business should have many more record years ahead.
Berkshire Hathaway became an investor in Sirius XM Radio late last year, and that's an investment that may soon include Pandora (NYSE:P) if the cat-and-mouse game between the satellite-radio monopoly and leading streaming service keeps heating up.
Sirius XM is a money machine. It generated $1.32 billion in free cash flow in 2015, and topped $1.5 billion last year. Its guidance calls for another $1.5 billion in free cash flow this year, and this is a company that has historically been conservative with its guidance.
Folks are paying big money for premium radio, and the business clearly works.
Sirius XM has become a steady and predictable business. Sirius XM has been consistently profitable for years. Top-line growth has been steady, with revenue growing between 9% and 13% in each of the past five years. The scalable model is a well-oiled machine, and net income has grown faster than revenue in five of the past six years.
Sirius XM is the undisputed champ of premium radio.
It can get away with charging $15.99 a month to tens of millions of subscribers because the growing numbers of cheaper alternatives aren’t as appealing. Sirius XM offers seamless coast-to-coast access to premium content for drivers, and the competition isn't even close.
Analysts and Hedge Funds Opinions
Sirius XM Holdings Inc. has been assigned an average rating of “Buy” from the nineteen ratings firms that are currently covering the company. Eight analysts have rated the stock with a hold recommendation and ten have issued a buy recommendation on the company.
TheStreet upgraded shares of Sirius XM Holdings from a “c+” rating to a “b-” rating in a research note on Wednesday, January 25th.
Macquarie reiterated a “buy” rating and set a $5.00 price target on shares of Sirius XM Holdings in a research note on Wednesday, January 11th.
Sirius XM feels that it can squeeze more juice out of Pandora -- especially as it promotes it to its growing audience or uses it to provide a stronger value proposition to its customers -- it could be a bargain at current levels. It is not a case of having to like Pandora, or even use it, to know that it's a good fit for Sirius XM.