IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.
Friday, 15th April, 2016
Option Trade – FedEx Corporation (NYSE:FDX) Calls
**OPTION TRADE: Buy the FDX Apr 29 2016 167.500 call at approximately $1.30. Sell price is left to your own judgment.
FedEx Corporation (NYSE: FDX), a provider of transportation, e commerce and business services under the FedEx brand, is on a roll – an upwards trend which is likely to continue for some time. Also, to help boost FDX, the Transportation-Air Freight space is seeing solid earnings estimate revision activity at the moment.
FedEx Corporation itself has seen solid earnings estimate revision activity over the past month, suggesting analysts are becoming a bit more bullish on the firm's prospects in both the short and long term.
In fact, over the past month, current quarter estimates have risen from $3.16 per share to $3.28 per share, while current year estimates have risen from $10.54 per share to $10.77 per share.
FedEx has a great deal of positive factors going for it at the present time:-
• The logistics giant is putting in significant efforts for growth and is well on track to acquire TNT, an express distribution and logistics company. The deal is expected to materialize by June 8, 2016. Both FedEx and TNT Express seem committed to close the merger in time. The companies have already received antitrust approval from the US, European Union, and Brazil but are awaiting approval from China.
• After the acquisition, FedEx will become the third largest logistics company in Europe, behind DHL and United Parcel Service. The consolidation would give FedEx access to TNT’s widespread Express network across Europe, which could benefit FedEx in the short term. According to Cowen, FedEx will continue with TNT’s current structure initially. FedEx will issue euro-denominated bonds to finance TNT acquisition, as the company aims to capitalize on low interest rates and high yields on euro bonds.
• The company posted better-than-expected third-quarter earnings and is expected to surpass forecasts for fourth quarter as well.
• For now, the company is focused on implementing its $1.68 billion profit improvement plan by the first half of 2016. In a recent announcement FedEx CFO, Alan Graf said: “We now expect our fiscal 2016 adjusted earnings to be up 20% to 22% over last year, as we continue to benefit from our execution of the profit improvement program.”
• The company is trying to expand into Chinese and Japanese e-commerce industries through its acquired company, Bongo International. FedEx has planned to rebrand Bongo International as FedEx Cross Border, which will provide assistance to customers and simplify shipping procedure.
• Furthermore, FedEx will improve the pricing of its products, and reduce the size of its “over-sized parcels” from 60 to 48 inches.
• The company is also planning to increase fuel surcharges in the freight segment. It plans to replace its aircraft fleet with the latest Boeing 767 models to increase fuel efficiency through which the logistics giant would save roughly $5-$8 million annually.
• It is expected that FedEx will generate roughly $558 million free cash flow in 2016, which would be used for share repurchases and dividends since the company hasn’t announced any plans for repaying its debt.
• FedEx has managed to get rid of lawsuits filed against the company for knowingly shipping illegal drugs to customers without a prescription. Around 18 lawsuits were filed, out of which the company has managed to dismiss over a dozen.
Analysts seem to be quite bullish on FDX with fourteen issuing a buy rating to the stock. The company presently has a consensus rating of “Buy” and an average target price of $178.24. FedEx Co. was upgraded by equities researchers at Vetr from a “hold” rating to a “buy” rating in a research note issued recently. Also, equities researchers at Robert W. Baird raised the price from $172.00 to $176.00. And Cowen Group reiterated its Outperform rating and $180 price target for FedEx Corporation last week.
With the TNT-merger on track paired with growth and cost-cutting initiatives, FedEx is likely to outperform the market. According to a recent report from The Wall street Journal, FedEx shares prices are expected to increase 15-20%.
The stock has a market capitalization of $44.86 billion and a P/E ratio of 41.74. The stock has a 50 day moving average price of $148.26 and a 200 day moving average price of $147.32. FedEx Co. has a one year low of $119.71 and a one year high of $185.19.
Friday, 15th April, 2016
Option Trade – PulteGroup, Inc. (NYSE:PHM) Puts
**OPTION TRADE: Buy the PHM May 20 2016 18.000 put at approximately $0.60. Sell price is left to your own judgment.
PulteGroup, Inc. (NYSE: PHM), a homebuilder operating in the United States, has been embroiled in management infighting. Over the past few weeks, the home builder’s founder, Bill Pulte, has been agitating to have the current CEO, Richard Dugas, fired. This situation has reached a critical stage where Pulte has hired Olshan Frome Wolosky LLP’s Activist & Equity Investment Practice to see what he can do legally. Recently, the fight ratcheted up another notch as Pulte’s ally on the board, James Grosfeld, resigned effective immediately. This type of situation is not beneficial to a display of confidence in a company and the effect on the stock price will be devastating.
PulteGroup, Inc. is expected to announce first quarter financial results before market opens on April 4th. The company added about 10.7 percent in value since last earnings when it was at $16.08. Based on the most relevant historical data, there is a 54.17 percent probability for share price to go down following the next earnings report. It has topped earnings-per-share estimates 50% of the time in its last 12 earnings reports – missing six times….and expectations after the next report is for another miss.
Analysts who follow PHM closely have been surprisingly neutral about this whole mess. Indeed, this month KeyBanc Capital Markets downgraded PHM to “Sector Weight” (a fancy way to say “Hold”), JPMorgan downgraded from “Overweight” to “Neutral” (again, “Hold”). Barclays actually upgraded PHM all the way from “Underweight” to “Equal Weight” — i.e. hold again. That’s a whole lot of “we don’t want to talk about it” for a major builder headed in earnings.
Three equities research analysts have rated the stock with a sell rating, eight have issued a hold rating and three have given a buy rating to the company’s stock. PulteGroup presently has an average rating of “Hold” and a consensus price target of $18.92.
When looking at PHM’s technical chart, it is noted that the typical retracement after a trip to the top Bollinger Band matched with a Williams%R overbought signal comes in at -14.83% over the next 5weeks. If PHM repeats for a full cycle, it would drop to $16.00 right about when its fresh numbers hit the wires.
PulteGroup, Inc. last closed at $17.58, sending the company’s market cap around $6.06B. The consensus 12-month price target from brokerage firms covering the stock is $19.21. The share price has declined -21.83% from its best level in 52 weeks and advanced -0.85% this year. It recently traded in a range of $17.52-$18.03 at a volume of 4728364 shares. The stock ended last trading session nearly -2.12 lower for the last 21 trading days, rebounding 20.94% from its 52-week low.
Friday, 15th April, 2016
Option Trade – Avis Budget Group Inc. (NASDAQ:CAR) Calls
**OPTION TRADE: Buy the CAR May 20 2016 25.000 call at approximately $1.10. Sell price is left to your own judgment.
Avis Budget Group Inc. (NASDAQ: CAR), a provider of car and truck rentals, car sharing, and ancillary services to businesses and consumers worldwide, has just managed a bounce off a 52-week low two days ago, and has now caught the analyst’s attention after adding 7.59 percent in the next trading session. They have favorable assessment of Avis Budget Group, Inc. (CAR), with a mean rating of 2.3. The stock is rated as buy by 3 analysts, with 3 outperform and 3 hold rating.
Avis Budget Group Inc. has been strong on high relative volume candidate recently -- 'Strong on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as M&A events, material stock news, analyst upgrades, insider buying, buying from 'superinvestors,' or that hedge funds and momentum traders are piling into a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize.
The average volume for Avis Budget Group has been 3.4 million shares per day over the past 30 days. Avis Budget Group has a market cap of $2.4 billion and is part of the services sector and diversified services industry. The stock has a beta of 2.56 and a short float of 17.1% with 6.81 days to cover. Shares are down 30.8% year-to-date as of the close of trading on Wednesday.
The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and good cash flow from operations.
There are several factors that are favorable to Avis Budget Group, which include:
• The revenue growth came in higher than the industry average of 16.6%. Since the same quarter one year prior, revenues slightly increased by 0.8%.
• The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Road & Rail industry and the overall market, Avis Budget Group Inc's return on equity significantly exceeds that of both the industry average and the S&P 500.
• Avis Budget Group Inc has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, many feel it is poised for EPS growth in the coming year. During the past fiscal year, Avis Budget Group Inc increased its bottom line by earning $2.96 versus $2.22 in the prior year. This year, the market expects an improvement in earnings ($3.02 versus $2.96).
Analysts project the company to maintain annual growth of around 14.53 percent over the next five years as compared to an average growth rate of 17.45 percent expected for its competitors in the same industry.
Among 10 analysts, the 12-month average price target for CAR is $37 but some analysts are projecting the price to go as high as $74. If the optimistic analysts are correct, that represents a 207 percent upside potential from the recent closing price of $24.10.
Monday, 11th April, 2016
Option Trade – Alcoa Inc (NYSE:AA) Puts
**OPTION TRADE: Buy the AA May 20 2016 9.000 put at approximately $0.45. Sell price is left to your own judgment.
Alcoa Inc (NYSE: AA), engaged in lightweight metals engineering and manufacturing, is scheduled to kick off the first-quarter earnings reporting season today, Monday, after the market closes.
Alcoa is expected to report earnings per share of 2 cents, according to the average estimate of analysts, well below earnings of 28 cents a share, in the same period a year ago. The consensus for revenue is $5.15 billion, down from $5.82 billion a year ago.
This will be the third straight quarter of declines in both earnings and revenue, given weakness in aluminum prices, which would mark a fitting start to what is projected to be the fourth straight quarter of earnings declines for the S&P 500 companies.
Despite several announcements aimed at boosting results, such as supply contracts and divestitures, and its plan to split itself into separate companies later this year, estimates have come down considerably over the last few months.
After disappointing earnings with Alcoa’s reports in the past two quarters, the stock tumbled 9% on January 12 after fourth-quarter results and 6.8% on Oct. 9 after third-quarter results.
In the last quarter, the New York-based aluminum giant swung to a loss, hurt by charges related to restructuring and lower metals pricing. Alcoa's primary metals business posted a loss in the quarter, hammered by lower aluminum prices and a decline in regional premiums -- headwinds from lower prices more than offset gains from productivity actions in the quarter.
Alcoa is still faced with a weak pricing environment. Lower realized aluminum prices hurt its primary metals business in fourth-quarter 2015 and is expected to remain a headwind in the March quarter.
Aluminum prices remain under pressure given the oversupply of the metal in the market, exacerbated by high levels of exports of the metal by China (the world's biggest producer) amid waning domestic demand. Alcoa faced significant headwinds from lower prices of aluminum and alumina which slumped 28% and 43%, respectively, last year. Weak metals prices have taken their toll on the company's shares which slumped roughly 37% in 2015.
Alcoa also faces headwinds associated with unfavorable currency swings and weakness across non-residential building and construction, and commercial transportation markets. Softness in non-residential building and construction market is expected to persist in Europe. The company also expects a double-digit decline in the heavy duty truck and trailer market in North America in 2016. The North American packaging market also remains weak.
The shares closed down 1.2% on Friday, reversing an earlier intraday gain of as much as 2.6%. Although they have rocketed 39% since closing at a near seven-year low of $6.74 on Jan. 19, they had still lost 5.1% year to date, while the S&P 500 index SPX inched up 0.1%.
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