“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, April 24, 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 – Etsy Inc (NASDAQ:ETSY) Puts

Friday, April 28, 2017

** OPTION TRADE: Buy the ETSY MAY 19 2017 10.000 PUT at approximately $0.50. Sell price is left to your own judgment.

The market has been booming since the results of the French election allowed everyone to breathe a giant sigh of relief over the weekend. However, not all stocks have been responding so positively. Etsy Inc (NASDAQ:ETSY) is one of those stocks. It’s actually down for the week.

With all other things going on, ETSY has been on a free fall — declining -17.85 percent in just three months.

Etsy, which builds markets, services and economic opportunity for creative entrepreneurs, announced that it will release its financial results for the first quarter of 2017 on Tuesday, May 2, 2017 in a press release after the market closes.

In its brief life as a publicly traded company, Etsy stock has seen volatile swings following earnings, and the fourth-quarter announcement was no different.

The marketplace showed off strong sales growth as revenue increased 25.4% year over year to $110.2 million, topping management's own guidance and analyst estimates. However, investments weighed on the bottom line as the company's loss per share widened from $0.04 to $0.19, far worse than analyst expectations of a $0.02 per share profit. Addressing the bottom line weakness, management cited increased labor expenses related to Blackbird Technologies and increased marketing expenses as the company launched its first global brand campaign.

Looking ahead, the market was also disappointed by management guidance, which called for revenue growth slowing from over 33% last year to between 20% and 22%, just shy of the analyst consensus. Management raised its compound annual growth guidance from 2016 to 2018 for revenue and gross merchandise volume, but that may be more of a reflection of last year's results rather than future expectations. The company also sees adjusted EBITDA falling slightly, calling for 12% to 14% margin this year, though that should improve to the high teens by 2018.

With its unique product selection and brand, Etsy is an appealing business, but e-commerce has proven to be a difficult industry. No one aside from eBay has found a way to deliver a strong operating margin. With revenue growth slowing and no signs of a profit this year, the sell-off seems warranted.

Influencing Factors

ETSY is still struggling to generate the amount of strong sales growth investors are looking for. Last year, the company announced it was acquiring Blackbird Technologies to improve the company’s search functionality on its site, but instead of resulting in a large uptick in revenue growth, the acquisition — along with other marketing expenses — has crimped ETSY’s margins.

It is not expected that this trend has turned around, and it doesn’t look like Wall Street believes the trend has changed either, otherwise the stock would be seen moving higher with the rest of the market.

It is likely ETSY to bounce down from resistance at $11 and move back down toward recent support near $10 in the run up to the company’s earnings announcement on May 2, after market close.

The gap between analyst price targets for the next 12 months and ETSY‘s current share price would normally see that this spread should be in positive territory, indicating that analysts expect an investment’s value to increase over time. So is with ETSY INC. The median target of analyst views collected by Yahoo Finance was as much as $3.07 below ETSY’s recent stock price. That’s the optimistic view from Wall Street.

The stock has actually made strong gains in the past year, as the company has gathered a 14.47% return in the past twelve months. But even with this move, there is still plenty of room for the company to come back from a longer term perspective; and especially taking into account recent lows for the company as well.

The company’s share price is down -50.28% from previous highs of around $16.05 per share on October 07, 2016.

Summary

Etsy Inc’s 50 day moving average is $10.34 and its 200-day moving average is $12.02. Etsy Inc has a 52-week low of $7.77 and a 52-week high of $16.05. The stock’s market cap is $1.16 billion.


Option Trade – Agnico Eagle Mines Ltd (USA) (NYSE:AEM) Calls

Thursday, April 27, 2017

** OPTION TRADE: Buy the AEM MAY 19 2017 47.000 CALL at approximately $1.00. Sell price is left to your own judgment.

Agnico Eagle Mines Ltd (USA) (NYSE:AEM)’s shares have made an outsized move relative to what the options market has priced in. This could signal a prime buying opportunity for options traders ahead of earnings.

Agnico Eagle Mines Limited is a gold producer with mining operations in northwestern Quebec, northern Mexico, northern Finland and Nunavut and exploration activities in Canada, Europe, Latin America and the United States. The Company operates through three business units. The Northern Business consists of its operations in Canada and Finland.

Analysts await Agnico Eagle Mines Ltd to report earnings today, April, 27, after the market closes. They expect $0.14 earnings per share, up 133.33% or $0.08 from last year’s $0.06 per share. AEM’s profit will be $32.13M for 77.20 P/E if the $0.14 EPS becomes a reality. After $0.02 actual earnings per share reported by Agnico Eagle Mines Ltd (USA) for the previous quarter, Wall Street now forecasts 600.00% EPS growth.

Influencing Factors

In addition to having an SVS of 100, AEM's Volatility Index (VI) of 37% is docked in the 30th annual percentile ahead of the company's earnings report.

Looking back over the past eight quarters, AEM has averaged a single-session post-earnings move of 4.7%. In two of those quarters -- including the most recent one -- the stock closed lower in the session subsequent to reporting. This time around, the options market is pricing in a slimmer 3.9% move for Friday's trading.

Options traders have been betting on a move to the upside, buying to open calls over puts at a faster-than-usual clip in recent weeks. Agnico Eagle Mines Ltd's 10-day call/put volume ratio of 5.11 is apparent at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 78th annual percentile.

Analysts and Hedge Funds Opinions

Agnico Eagle Mines Ltd. was upgraded to overweight from neutral at J.P. Morgan following a pullback in the stock that came despite ongoing progress in the company’s reserve replacement program.

“North American precious metals equities seem conflicted,” analyst John Bridges said in a research note.

He pointed out that some investors fear we may be in the midst of a 2016 reprise, when gold stocks began the year weak due to fears about rising interest rates, and then rallied as these concerns dissipated.

The analyst believes Agnico Eagle deserves more attention. That stems from its well-established track record of finding new gold reserves at reasonable costs, as demonstrated by its modest 225 million share count and disciplined dividend payments.

“Agnico is well positioned for the new world of gold,” Bridges said. “The company has several long-life assets, and its overall production rate should be sustainable and could grow.”

Also, Zacks Investment Research raised shares of Agnico Eagle Mines from a “strong sell” rating to a “hold” rating in a report on Tuesday.

As well, Royal Bank of Canada reissued a “hold” rating and set a $46.00 price objective on shares of Agnico Eagle Mines in a report on Tuesday, April 18th.

One investment analyst has rated the stock with a sell rating, five have issued a hold rating and eight have assigned a buy rating to the stock. Agnico Eagle Mines presently has an average rating of “Buy” and an average target price of $56.31.

P.R. Herzig & Co. Inc. raised its stake in shares of Agnico Eagle Mines Ltd by 15.9% during the first quarter, according to its most recent 13F filing with the Securities and Exchange Commission (SEC). The firm owned 39,354 shares of the mining company’s stock after buying an additional 5,400 shares during the period. P.R. Herzig & Co. Inc.’s holdings in Agnico Eagle Mines were worth $1,670,000 as of its most recent filing with the SEC.

Summary

Agnico Eagle Mines Ltd’s 50 day moving average is $43.77 and its 200-day moving average is $44.56. The stock has a market cap of $9.78 billion, a PE ratio of 62.09 and a beta of -0.51. Agnico Eagle Mines Ltd has a 1-year low of $35.05 and a 1-year high of $60.10.


Option Trade – Southwest Airlines Co (NYSE:LUV) Calls

Wednesday, April 26, 2017

** OPTION TRADE: Buy the LUV MAY 19 2017 60.000 CALL at approximately $0.75. Sell price is left to your own judgment.

Southwest Airlines Co (NYSE:LUV), a passenger airline that provides scheduled air transportation in the United States and near-international markets, LUV is scheduled to report first-quarter 2017 results on Apr 27, before the market opens.

In the fourth quarter, this low-cost carrier posted a positive earnings surprise of 7.25% aided by higher revenues. Operating revenues of $5,076 million edged past the Consensus Estimate of $5,025.3 million. Revenues also increased 2% on a year-over-year basis.

Southwest Airlines Co., the busiest carrier at John Glenn Columbus International Airport, ranks among the best-performing carriers in the United States, according to the annual Airline Quality Rating evaluation of flight cancelations and delays, lost baggage, passenger complaints and how often travelers are bumped from flights.

Dallas-based Southwest ranked No. 1 for customer satisfaction, No. 6 for on-time arrivals, No. 8 for baggage service and No. 11 for fewest denied boarding.

Influencing Factors

Southwest Airlines' has a very friendly employee approach. Evidently, in Feb 2017 the carrier paid $586 million to its employees as part of its profit-sharing plan for 2016.

Moreover, Southwest Airlines efforts to enhance its shareholders’ wealth through dividends and share buybacks are encouraging.

LUV currently has $1.68 Billion of cash on the books, which is offset by $566 Million current liabilities. You can get a sense of how sustainable that is by a levered free cash flow of $2.26 Billion over the past twelve months.

Generally speaking, earnings are expected to grow in coming quarters. Analysts are forecasting earnings of $0.62 on a per share basis this quarter.

LUV is now solidly presented where a clearly defined trend is concerned. This is evident based on information displayed via its 50 and 200 SMAs. The trend levels paint a telling picture which when analyzed, is best characterized as bullish. As a result of the current trends presented by both SMAs, traders have offered a defined and strong outlook for the stock. The overall sentiment or disposition towards the stock can best be described as positive.

Analysts and Hedge Funds Opinions

Vetr upgraded shares of Southwest Airlines Co from a buy rating to a strong-buy rating in a research report published last Wednesday morning. They currently have $60.24 target price on the airline’s stock.

Four investment analysts have rated the stock with a hold rating, eleven have assigned a buy rating and one has issued a strong buy rating to the company.

Summary

Southwest Airlines has a 52-week low of $35.42 and a 52-week high of $59.68. The company has a market cap of $34.76 billion, a P/E ratio of 15.92 and a beta of 0.88. The stock’s 50 day moving average price is $54.36 and its 200 day moving average price is $50.15.


Option Trade – Discover Financial Services (NYSE:DFS) Calls

Monday, April 24, 2017

** OPTION TRADE: Buy the DFS MAY 19 2017 67.500 CALL at approximately $1.10. Sell price is left to your own judgment.

Discover Financial Services (NYSE:DFS), a direct banking and payment services company, will post its first-quarter numbers on April 25. The company is expected to report after the market close, with the consensus calling for earnings of $1.42, up from $1.35 during the same period last year.

DFS traded higher during the latter part of 2016, fueled by a solid quarterly report in December, and expectations of economic growth following President Trump’s unexpected presidential victory. The stock lost some of its momentum during the first quarter, but Wall Street remains upbeat on the stock’s future.

The company has a good earnings track record, with better than expected earnings for four straight quarters. The Street expects another earnings beat, with a whisper number that is three pennies above the consensus at $1.45.

DFS shares have fallen 8.0% on the year.

Influencing Factors

Discover Financial is likely to have witnessed solid revenue growth in its consumer loans business. The upside is expected to be driven by surging enrollment on the recently launched Credit Scorecard.

Revenues from Discover’s PULSE business have likely continued its recent trend of modest growth.

Partnership with Elo in the fourth quarter of 2016 is likely to have boosted its Elo cardholder membership base.

The company also remains committed toward enhancing shareholders' value. To this end, it undertook share repurchases, which should bolster earnings by reducing the outstanding share count.

Investment in technology to enhance products and processes should translate to top-line growth in the first quarter.

Personal loans are anticipated to have grown significantly on the back of several marketing initiatives, strengthening the top line.

Analysts and Hedge Funds Opinions

Analysts have an average price target of $74.46 on the stock, which suggest shares are undervalued by as much as 11.3%, and 11 of the 15 analysts that cover it have rated it a “strong buy”. With this much optimism, investors should expect to see nice gains following the report, as long the company is able to hit its estimates.

Jefferies Group LLC reaffirmed their buy rating on shares of Discover Financial Services in a research note released on Friday morning. They currently have an $82.00 target price on the financial services provider’s stock.

Summary

Discover Financial Services has a market cap of $25.53 billion, a PE ratio of 11.48 and a beta of 1.42. The stock’s 50 day moving average price is $68.16 and its 200-day moving average price is $66.84. Discover Financial Services has a 12 month low of $50.32 and a 12 month high of $74.33.




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