“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, May 14, 2018

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 - - Electronic Arts Inc. (NASDAQ:EA) Calls

Thursday, May 17, 2018

** OPTION TRADE: Buy EA JUNE 15 2018 135.000 CALL at approximately $1.80 TO $2.00 each. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $3.60.

Also include a protective stop loss of $0.70.)

Electronic Arts Inc. (NASDAQ:EA), a game software content and services provider, was the subject of a bullish brokerage note and hedge fund support yesterday. The regulatory filings revealed Third Point and Jana Partners took stakes in EA.

In addition, SunTrust Robinson issued a price-target hike to $140 from $135, which sits north of last Friday's record high of $134.58.

Overall, the shares have added 24% in 2018, with the recent pullback contained by both the 160- and 200-day moving averages.

The bullish analyst attention is nothing new for EA. More than 80% of brokerages covering the security rate it a "buy" or "strong buy," with not a single "sell" on the books. Plus, the stock's average 12-month price-target of $143.24 is a 10% premium to EA's current perch.

Video game makers are enjoying a strong, secular theme that has little reason to slow anytime soon. Gamers are aging, but they're not putting their controllers down. That bodes well for video game stocks, as does the business of in-game content.

No longer do game-makers rely solely on initial sales. They can create content packs, new maps and new characters. Even though the sale price on these add-on items tends to be low, they have high margins.

Influencing Factors

Earlier last week, Electronic reported its fiscal fourth-quarter earnings results. After beating expectations, EA stock erupted to new all-time highs.

Analysts are applauding the quarter, raising price targets left and right since the report. The average post-earnings price target rests at $145.70.

The highest price target, from Wedbush Securities, sits all the way up at $158, implying almost 20% upside from current levels.

Bookings in the quarter jumped almost 15%, which was solid. Earnings per share and revenue came in ahead of expectations, while guidance was good but not blowout. For fiscal 2019 (current year), management expects sales of $5.6 billion along with operating cash flow of $1.825 billion, up about 8% from 2017.

For next quarter, management provided guidance of $1.08 billion. Some analysts have said this guidance appears conservative and by the way the stock is trading, investors are thinking the same thing.

Blake Jorgensen, COO and CFO, said in the press release:

"Our success is driven by the way we have changed, and continue to change, our relationship with players. They want more depth in their favorite games, and fresh content that can hold their attention year-round. This has made our business much more stable and enabled us to deliver a dependable and growing cash flow to investors."

"Nearly 18 million players engaged in competitive gaming across FIFA 18 and Madden NFL 18, up more than 75% year-over-year. " That's a pretty big move for franchises that already have a pretty entrenched user base.

A $2.4 billion share buyback, good for 6% of outstanding stock at current levels, also helps.

Analysts and Hedge Funds Opinions

Analysts have high hopes for Electronic Arts stock during 2018, with consensus estimates calling for 9% revenue growth and 17% earnings growth.

BidaskClub raised Electronic Arts from a “hold” rating to a “buy” rating in a report on Saturday.

Several other analysts have also recently commented on the company…..

  • Zacks Investment Research raised Electronic Arts from a “sell” rating to a “hold” rating in a report on Monday.
  • Barclays reiterated a “buy” rating and issued a $139.00 price target on shares of Electronic Arts in a research report on Wednesday, May 9th.
  • Finally, Morgan Stanley upped their target price on Electronic Arts from $120.00 to $126.00 and gave the company an “equal weight” rating in a research report on Wednesday, January 31st.

Four analysts have rated the stock with a hold rating, twenty-three have given a buy rating and one has assigned a strong buy rating to the company’s stock. The stock has a consensus rating of “Buy” and a consensus price target of $143.24.

Institutional investors that have recently made a change to their positions in the stock….

  • KCS Wealth Advisory raised its position in Electronic Arts by 4,067.5% during the first quarter. The fund owned 21,004 shares of the game software company’s stock after purchasing an additional 20,500 shares during the period. KCS Wealth Advisory’s holdings in Electronic Arts were worth $1,281,000 at the end of the most recent quarter.
  • BlackRock Inc. lifted its stake in shares of Electronic Arts by 4.4% in the 4th quarter. BlackRock Inc. now owns 21,297,293 shares of the game software company’s stock worth $2,237,493,000 after acquiring an additional 904,557 shares during the period.
  • American Century Companies Inc. raised its position in Electronic Arts by 16.4% during the first quarter. American Century Companies Inc. now owns 3,354,732 shares of the game software company’s stock worth $406,728,000 after acquiring an additional 471,449 shares during the last quarter.
  • Geode Capital Management LLC raised its position in Electronic Arts by 3.3% during the fourth quarter. Geode Capital Management LLC now owns 3,249,844 shares of the game software company’s stock worth $340,709,000 after acquiring an additional 102,739 shares during the last quarter.
Summary

For the first quarter, EA expects net bookings of approximately $720 billion and net revenue of $1.08 billion. The company is also guiding for net income of $200 million, or $0.64 per share.

"In the year ahead, we will expand the world of play with amazing new experiences and new IP, more competition, and industry-leading subscription programs," CEO Andrew Wilson said. "There has never been a more exciting time to be engaging and entertaining global communities."

Electronic Arts has a market cap of $40.65 billion, a P/E ratio of 38.00, a price-to-earnings-growth ratio of 2.06 and a beta of 0.82. Electronic Arts has a 52 week low of $129.98 and a 52 week high of $131.06. The company has a debt-to-equity ratio of 0.22, a current ratio of 2.41 and a quick ratio of 1.92.


Option Trade - - DowDuPont Inc (NYSE:DWDP) Puts

Wednesday, May 16, 2018

** OPTION TRADE: Buy DWDP JUNE 15 2018 65.000 PUT at approximately $1.00 TO $1.05 each. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $2.00.

Also include a protective stop loss of $0.40.)

Chemical giant DowDuPont Inc (NYSE:DWDP) has made several unsuccessful attempts to break out of the channel it is stuck in – but to no avail. A firm layer of resistance is in place as the stock is suffering lower highs and lows since its late-January peak, and is down more than 13%.

There's little in the way of sideline cash to help fuel any future rally attempts. The 18.25 million DWDP shares dedicated to short interest account for less than 1% of the stock's available float, and would take just two days to cover, at the average pace of trading.

As well, this area of resistance corresponds with a heavy accumulation of call open interest at the May and June 67.50 strikes, where more than 33,000 total contracts reside. This could reinforce the region as a technical ceiling, as the hedges related to these bets begin to unwind over the next several weeks.

Based on the recent corporate insider activity of 97 insiders, corporate insider sentiment is negative on the stock.

Based on DowDuPont Inc’s latest earnings release for the quarter ending March 31, the company reported quarterly revenue of $21.51 billion and net profit of $1.1 billion. In comparison, last year the company earned revenue of $13.22 billion and had a net profit of $884 million.

Analysts and Hedge Funds Opinions

Barclays analyst Duffy Fischer maintained a Hold rating on DowDuPont Inc yesterday.

Several other analysts have also recently commented on the company…..

  • Deutsche Bank lowered their target price on Dow Chemical from $84.00 to $76.00 and set a “buy” rating on the stock in a research note on Friday, May 4th.
  • Credit Suisse Group lowered their target price on Dow Chemical from $82.00 to $78.00 and set an “outperform” rating on the stock in a research note on Friday, May 4th.
  • Citigroup lowered their target price on Dow Chemical from $82.00 to $80.00 and set a “buy” rating on the stock in a research note on Friday, May 4th.
Insider News……

Insider Ronald C. Edmonds sold 15,000 shares of Dow Chemical stock in a transaction that occurred on Friday, March 9th. The stock was sold at an average price of $71.83, for a total value of $1,077,450.00.

Also, General Counsel Charles J. Kalil sold 69,400 shares of Dow Chemical stock in a transaction that occurred on Friday, February 23rd. The stock was sold at an average price of $72.66, for a total value of $5,042,604.00.

 Summary

Dow Chemical has a twelve month low of $67.05 and a twelve month high of $67.74. The company has a debt-to-equity ratio of 0.29, a current ratio of 1.87 and a quick ratio of 1.21. The company has a market capitalization of $155.88 billion, a P/E ratio of 18.70, a P/E/G ratio of 1.68 and a beta of 1.30.


Option Trade - - Cisco Systems, Inc. (NASDAQ:CSCO) Calls

Tuesday, May 15, 2018

** OPTION TRADE: Buy CSCO JUNE 15 2018 46.000 CALL at approximately $1.25 TO $1.30 each. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $2.50.

Also include a protective stop loss of $0.50.)

The computer networking giant Cisco Systems, Inc. (NASDAQ:CSCO), that designs and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world, will report earnings tomorrow, Wednesday, May 16, 2018, after the market closes. The consensus earnings estimate is $0.65 per share on revenue of $12.42 billion; and the Earnings Whisper number is $0.66 per share.

The company's guidance was for earnings of $0.64 to $0.66 per share. Consensus estimates are for year-over-year earnings growth of 10.17% with revenue increasing by 4.02%.

Short interest has decreased by 17.0% since the company's last earnings release. Also, overall earnings estimates have been revised higher since the company's last earnings release.

Influencing Factors

Cisco collaborated with UAE-based telecom company `du` and signed a MoU with the Government of Portugal to accelerate digitization.

The company teamed up with Teradata TDC to leverage on IoT with a view to digitally transforms cities. Integration of Cisco's Kinetic IoT data platform with Teradata Analytics Platform enhances support for public safety and will aid in creating smart city framework. The company also

Notably, at the Mobile World Congress ("MWC") 2018, Cisco partnered with government and telecoms, like Reliance Jio, Telenor, SFR (a subsidiary of Altice), Airtel, TIM, Vodafone and Saudi Telecom Company to digitize and build advanced and 5G capable networks.

At MWC, Cisco announced plan to form a multi-vendor ecosystem to accelerate adoption and viability of Open vRAN solutions. The company announced 5G Now portfolio to aid global service providers and consequently mobile operator customers worldwide by advancing their 5G plans.

Cisco innovatively capitalized on digitization opportunities. The new collaborations are likely to boost top-line growth in the to-be-reported quarter.

Cisco was selected by NBC Olympics as a provider of IP video and networking solution for the XXIII Olympic Winter Games.

In order to simplify network architecture, Cisco collaborated with Verizon to accelerate adoption of Hybrid Information-Centric Networking ("ICN").

Cisco introduced its new Cisco Crosswork Network Automation software portfolio, which will improve the efficiency of its large-scale networks. The company unveiled NCS 1004 and NCS 1010 modular platforms to aid providers leverage their fiber investment by enhancing automation capabilities.

The company also introduced Cisco SD-WAN vAnalytics and Cisco Meraki Insight to bring visibility to wide-area network ("WAN").The new products are likely to strengthen the company's networking capabilities.

During the quarter, Cisco announced enhancement of its HyperFlex platform with the 3.0 software release allowing for dynamic deployment and management capabilities of its cloud services.

Container Platform, new production-grade software for the management of Containerized applications across the cloud environment, was also introduced.

Expect Cisco to deliver robust performance in the Cloud services segment. The completion of Broadsoft's acquisition during the quarter is likely to strengthen Cisco's cloud strategy portfolio, helping it to achieve a leadership position in the segment.

Cisco's efforts on expanding footprint in the rapidly-growing security market bode well. During the quarter, the company collaborated with Rackspace to deliver its customers protection against evolving sophisticated threats such that their multicloud journey is secured. The company also collaborated with the likes of Apple, Aon and Allianz to introduce a new cyber risk management solution for businesses.

Analysts

Robert W. Baird analyst Jayson Noland maintained a Buy rating on Cisco Systems yesterday and set a price target of $51. Noland observed:

“We surveyed 65+ channel partners representing ~$10.0 billion in annual Cisco product sales. Survey participants noted a solid FQ3 relative to historical results with a positive outlook for in general. Several partners noted longer lead times for the Cat 9K have caused increased backlog. We continue to see Cisco well positioned in key growth areas, namely Security. We remain positive on CSCO shares and maintain our Outperform rating.”

Also, GBH Insights analyst Daniel Ives reiterated a Buy rating on Cisco Systems yesterday and set a price target of $51.

In a report issued on May 3, J.P. Morgan also initiated coverage with a Buy rating on the stock with a $57 price target.

Currently, the analyst consensus on Cisco Systems is Strong Buy and the average price target is $50.29, representing a 9.5% upside.

Summary

Cisco Systems has a current ratio of 2.43, a quick ratio of 2.38 and a debt-to-equity ratio of 0.49. Cisco Systems has a 12 month low of $45.69 and a 12 month high of $46.22. The stock has a market capitalization of $221.27 billion, a PE ratio of 21.26, a P/E/G ratio of 3.28 and a beta of 1.14.





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