“Cut-to-the-Chase” Recommendations Week Beginning
Monday, May 15, 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 – Foot Locker, Inc. (NYSE:FL) Puts

Thursday, May 18, 2017

** OPTION TRADE: Buy the FL JUNE 16 2017 67.500 PUT at approximately $1.20. Sell price is left to your own judgment.

Foot Locker, Inc. (NYSE:FL), a retailer of shoes and apparel, is scheduled to issue its next quarterly earnings report before the market opens on Friday, May 19th, and investors are not very excited about the upcoming report.

The apparel retailer warned in late April that comps slumped in the first month of the quarter thanks mainly to a delay in tax refunds. Growth picked up once those checks started flowing later on, but the boost "did not fully offset the slow start to the quarter," CEO Richard Johnson explained, as the company lowered its first-quarter outlook.

The current Consensus Estimate for the quarter under review is $1.38 a penny down from $1.39 reported in the year-ago period. It is noted that the Consensus Estimate has decreased by 9 cents in the past 30 days.

Also, equities research analysts expect Foot Locker, Inc. to post sales of $2.02 billion for the current fiscal quarter. Eight analysts have made estimates for Foot Locker’s earnings, with estimates ranging from $1.99 billion to $2.05 billion. Foot Locker reported sales of $1.99 billion during the same quarter last year, which indicates a positive year over year growth rate of 1.5%.

On average, analysts expect that Foot Locker will report full year sales of $2.02 billion for the current year, with estimates ranging from $8.09 billion to $8.35 billion. For the next financial year, analysts expect that the firm will report sales of $8.51 billion per share, with estimates ranging from $8.4 billion to $8.68 billion.

Influencing Factors

A competitive retail landscape, fashion obsolescence and foreign currency headwinds remain concerns.

Moreover, sluggish start to fiscal 2017 on account of delay in the issuance of income tax refund compelled Foot Locker to revisit its outlook. The company now envisions earnings in the first quarter to be equivalent to or marginally below last year's earnings or in the range of $1.36-$1.39 per share. Management expects comparable store sales to increase at a low-single digit percentage rate in the quarter.

Analysts and Hedge Funds Opinions

Zacks Investment Research lowered shares of Foot Locker, Inc. from a buy rating to a hold rating in a report published on Monday, April 24th.

According to Zacks, “Foot Locker has outpaced the industry in the past one year. Sturdy comparable sales performance, cost containment efforts and strategic initiatives have aided the company to post third straight quarter of positive earnings surprise, when it reported fourth-quarter fiscal 2016 results. We believe that continuous exploitation of opportunities such as children’s business, shop-in-shop expansion, store banner.com business, store refurbishment and enhancement of assortments, bode well. However, sluggish start to fiscal 2017 due to delay in tax refund compelled Foot Locker to revisit its outlook. The company now envisions earnings in the first quarter to be equivalent to or marginally below from the prior-year period and expects comps to increase at a low-single digit percentage rate. For the rest of the quarters, Foot Locker reiterated double-digit growth in earnings per share and a mid-single digit percentage increase in comps.”

Wellman Capital Management Inc. cut its position in Foot Locker, Inc. by 16.7% during the first quarter, according to its most recent 13F filing with the Securities and Exchange Commission (SEC).

Also, SVP Paulette Alviti sold 8,000 shares of the business’s stock in a transaction dated Thursday, April 20th. The shares were sold at an average price of $74.50, for a total value of $596,000.00.

Summary

Foot Locker, Inc. has a market cap of $9.30 billion, a price-to-earnings ratio of 14.43 and a beta of 0.57. Foot Locker, Inc. has a 1-year low of $50.90 and a 1-year high of $79.43. The firm has a 50-day moving average price of $74.63 and a 200 day moving average price of $72.83


Option Trade – Deere & Company (NYSE:DE) Calls

Wednesday, May 17, 2017

** OPTION TRADE: Buy the DE JUNE 16 2017 120.000 CALL at approximately $1.25. Sell price is left to your own judgment.

Deere & Company (NYSE:DE), engaged in equipment operations, is set to announce its fiscal 2Q17 earnings on May 19, 2017, before the market opens. Deere’s financial year is from November 1 through October 31.

Analysts are expecting Deere & Company to post revenue of $7.3 billion in 2Q17, a 2.6% rise year-over-year compared to $7.1 billion in 2Q16. In the past three quarters, Deere has managed to beat analysts’ estimates.

Deere announced its 1Q17 earnings on February 17, 2017. From that date until May 15, 2017, DE has risen 3.2%. It outperformed its peer Agco (AGCO) and the broad-based SPDR S&P 500 ETF (SPY), which rose 0.20% and 2.2%, respectively.

DE stock continued to rise after it repeatedly beat analysts’ consensus in the previous quarters. In the past three months, Deere has upgraded and introduced new products, hoping to improve sales in its equipment division.

Influencing Factors

Deere’s gains after its 1Q17 earnings pushed the stock to an all-time high, closing at $113.80 on May 15, 2017. As a result, the stock traded 4.7% above its 100-day moving average of $108.69, indicating an upward trend in the stock.

Deere has a 14-day RSI (relative strength index) of 61, which indicates that the stock is neither overbought nor oversold.

Deere projects total equipment sales to rise about 1% in second-quarter fiscal 2017 compared with the year-ago period. Foreign currency rates are not likely to have a material translation effect on equipment sales for the second-quarter fiscal 2017. Deere will gain from durable business model and a wider range of revenue sources.

The major factor that could drive up Deere’s revenue is expected to be growth in South America, specifically Brazil and Argentina. DE’s agriculture and turf segment is expected to rise 15.0%–20.0% in these regions due to improved political and economic conditions. DE’s introduction of new products is also expected to drive up revenue.

Bruce Kamich, who writes about technical trading for The Street's sister publication Real Money says Deere's charts are bullish.

Kamich wrote on Tuesday that, "Deere has rallied strongly since last fall, including a big upside price gap in November. Prices have leveled off recently in what I see as a pause before they move still higher in the months ahead. A review of the current state of the indicators gives us the confidence to put forth higher price targets."

"Bottom line," Kamic says, "Continue to trade DE from the long side, risking a close below $110. The $125 area is our initial upside price target."

European sales look to provide another tailwind for Deere shares. On Monday Reuters reported that sales of agricultural machinery look set to rebound there in 2017 following a multi-year soft market. Reuters reported that rising German demand look to counter French agricultural lethargy. 

Analysts and Hedge Funds Opinions

Stifel Nicolaus started coverage on Deere & Company in a research note on Monday, April 10th. They issued a “buy” rating and a $126.00 target price on the stock.

BMO Capital Markets reiterated a “buy” rating and issued a $128.00 target price on shares of Deere & Company in a research note on Thursday, April 20th.

JPMorgan Chase & Co. upgraded shares of Deere & Company (NYSE:DE) to an underweight rating in a report issued on Monday, May 1st. JPMorgan Chase & Co. currently has $94.00 target price on the industrial products company’s stock, up from their previous target price of $90.00.

Four research analysts have rated the stock with a sell rating, ten have assigned a hold rating and thirteen have issued a buy rating to the company. Deere & Company presently has a consensus rating of “Hold” and an average price target of $102.56.

Winslow Evans & Crocker Inc. raised its stake in shares of Deere & Company (NYSE:DE) by 141.2% during the first quarter, according to its most recent disclosure with the Securities and Exchange Commission (SEC). The institutional investor owned 7,526 shares of the industrial products company’s stock after buying an additional 4,406 shares during the period. Winslow Evans & Crocker Inc.’s holdings in Deere & Company were worth $819,000 as of its most recent filing with the SEC.

Summary

Deere & Company has a market capitalization of $36.54 billion, a P/E ratio of 24.87 and a beta of 0.73. Deere & Company has a 52 week low of $76.73 and a 52 week high of $114.96. The company’s 50-day moving average price is $110.48 and its 200 day moving average price is $105.34.


Option Trade – salesforce.com, inc. (NYSE:CRM) Calls

Tuesday, May 16, 2017

** OPTION TRADE: Buy the CRM JUNE 16 2017 95.000 CALL at approximately $1.30. Sell price is left to your own judgment.

Cloud software provider, salesforce.com, inc. (NYSE:CRM), is set to report first-quarter fiscal 2018 results on May 18 and the analyst's checks point to a "very solid quarter" on the enterprise and commercial segment. Last quarter, the company reported lower-than-expected earnings.

Analysts predict that salesforce.com, inc. will post $0.06 earnings per share (EPS) for the current quarter. Thirteen analysts have made estimates for salesforce.com, inc.’s earnings. The lowest EPS estimate is $0.05 and the highest is $0.08. salesforce.com, inc. reported earnings per share of $0.08 during the same quarter last year, which suggests a negative year-over-year growth rate of 25%.

Analysts expect that salesforce.com, inc. will report full-year earnings of $0.44 per share for the current year, with EPS estimates ranging from $0.37 to $0.58. For the next financial year, analysts forecast that the business will post earnings of $0.75 per share, with EPS estimates ranging from $0.62 to $0.95.

Influencing Factors

Last week, Salesforce.com announced the launch of a $100 million venture capital fund. The new Salesforce Platform Fund will support the development of Artificial Intelligence, or AI, based applications on the company's platform.

The new fund will be the fourth from Salesforce Ventures, its strategic venture arm created in 2014. The company has raised $350 million through its four funds, all with a different objective. It's first capital raise was focused on mobile app start-ups and included DocuSign, a popular digital signature software platform which also has a partner solution with Salesforce. Other funds have focused on raising capital for the EMEA market, along with $50 million to build a developer community for its Lightning platform.

All the company's investments have gone to support enterprise cloud companies that align closely to its business.

Although the company's bottom-line results fell short of estimates, it was encouraging to see the its top-line performance fare better than expectations, but also marked a significant year-over-year improvement.

The improvement was primarily attributed to the rapid adoption of the company's cloud-based solutions. Also, higher demand for Salesforce ExactTarget Marketing Cloud platform, part of the Salesforce1 Customer Platform, contributed to this improvement. It is expected that the trend to continue in the first quarter as well.

A higher number of deal wins and geographical contributions are also likely to boost results in the soon-to-be-reported quarter. Overall, the company's diverse cloud offerings and considerable spending on digital marketing remain growth catalysts. Moreover, strategic acquisitions and resultant synergies are anticipated to drive the fiscal first-quarter results.

Considering increased customer adoption and satisfactory performances, market research firm -Gartner - acknowledged Salesforce as the leading social CRM solution provider. It is believed that the rapid adoption of the company's platforms indicates solid growth opportunities in the expanding cloud computing space, which will, in turn, boost results in the quarter to be reported.

Analysts and Hedge Funds Opinions

Piper Jaffray's Alex Zukin maintained an Overweight rating on Salesforce's stock with an unchanged $100 price target, and labeled the company as the "most attractive stock" in its universe.

Zukin said that within the enterprise segment, he has "heard of sizable transactions" within the financial services, technology, telecommunication, and CPG spaces. By region the analyst also "heard of strength" in various domestic regions including the west and east coast, and central for commercial.

The analyst also noted that from a product perspective, Service Cloud "continues to lead the pack" as the company is working to increase its penetration with Sales Cloud customers.

Zukin noted his overall feeling is one of strength. Specifically, a "healthier" macro environment, coupled with "better and broader" strategic messaging from the company is yielding sustainable momentum.

Also, the sales morale at Salesforce remains "very strong" with no unusual levels of attrition detected despite bigger than usual sales realignment. As such, the company appears to be "firing on all cylinders."

"These sentiments are reflected in our thinking about pipeline health and we continue to believe that the company remains well positioned for the year," Zukin concluded.

Also, salesforce.com, inc. was upgraded by equities research analysts at Vetr from a “hold” rating to a “buy” rating in a report released on Monday. The brokerage presently has a $95.22 price objective on the CRM provider’s stock. Vetr‘s price target would suggest a potential upside of 6.04% from the stock’s current price.

Summary

salesforce.com, inc. has a 50-day moving average of $82.88 and a 200 day moving average of $76.50. salesforce.com, inc. has a 52 week low of $66.43 and a 52 week high of $86.42. The company has a market cap of $58.81 billion, a PE ratio of 319.73 and a beta of 1.42.


Option Trade – Wal-Mart Stores, Inc. (NYSE:WMT) Calls

Tuesday, May 16, 2017

** OPTION TRADE: Buy the WMT JUNE 16 2017 77.500 CALL at approximately $1.00. Sell price is left to your own judgment.

Wal-Mart Stores, Inc. (NYSE:WMT), engaged in the operation of retail, wholesale and other units in various formats around the world, is scheduled to report its first quarter results before the market opens on May 18. Analysts call for earnings of $0.96 per share, down from $0.98 during the same period last year.

The consensus calls for earnings of $0.96, but the street has a slightly higher whisper number of $0.98, which is the number Wall Street really wants to see for the quarter.

So far this earnings season has not been good for brick-and-mortar retailers, as the “Amazon effect” continues to weigh on the sector, but Wal-Mart has the chance to turn things around for the sector. The company has invested heavily in recent years on its e-commerce business, which has started to pay off, and puts the company is a good position to compete against the e-commerce giant.

Analysts expect Walmart to report sales of $117.8 billion in fiscal 1Q18, representing an improvement of 1.7% compared to fiscal 1Q17. Its top line is expected to benefit from strategic investments in the past couple of years to revamp its operations aimed at driving store traffic and boosting online sales.

The stock has appreciated 10.1% on the year.

Influencing Factors

Wal-Mart has been striving to understand the evolving needs of customers to regain their confidence and boost sales. It has delivered positive comps in the U.S. in the last 10 quarters. Moreover, traffic improved for the ninth consecutive quarter, owing to the company’s efforts to modernize stores for higher footfall and improvement in consumer spending. The company continues to expect positive comps year over year at Wal-Mart U.S. in fiscal 2018.

Wal-Mart expects U.S. comp sales growth in the range of 1−1.5% for the 13-week period ending Apr 28. Sam’s Club comp sales, without the impact of fuel sales, are expected to increase around 1%. The company expects earnings in the range of 90 cents–$1.00 per share.

Wal-Mart’s shares have increased 14.7% in the past one year, outperforming the categorized Retail-Supermarkets industry’s growth of 11.0%.

Wal-Mart is also making huge investments in e-commerce initiatives to compete with the biggest online retailer, Amazon.com AMZN. In this regard, the company continues to make huge investments in e-commerce initiatives, including acquisitions. The company has made three e-commerce acquisitions, since the buyout of Jet.com, U.S. e-commerce company, in Sep 2016.

The Jet.com acquisition was a major step toward accelerating its online business. It offered customers a massive online marketplace where they can purchase items at discounted prices.

In Jan 2017, the company started offering free two-day shipping to U.S. shoppers on a minimum order of $35 on over 2 million items and that too, without any membership fee. The company competes with Amazon’s Prime shipping program, which charges customers $99 a year for two-day shipping with additional features like a streaming video service. This project will replace Wal-Mart's existing shipping program named 'Shipping Pass' that charge shoppers an annual membership fee of $49.

In addition to offering two-day shipping to stores, Wal-Mart continues to offer ‘same-day store Pickup’ on many items and ‘Online Grocery Pickup’ at more than 600 locations across the country. The company intends to expand this service in fiscal 2018.

Analysts and Hedge Funds Opinions

Wal-Mart Stores had its target price raised by Deutsche Bank AG from $71.00 to $81.00 in a research note released on Monday week. The brokerage currently has a hold rating on the retailer’s stock.

Sanford C. Bernstein reaffirmed a “buy” rating on shares of Wal-Mart Stores in a research report on Saturday.

Jefferies Group LLC reissued a “buy” rating and set a $88.00 price target (up previously from $86.00) on shares of Wal-Mart Stores in a research report on Friday.

Four equities research analysts have rated the stock with a sell rating, eighteen have given a hold rating and fourteen have issued a buy rating to the stock.

Summary

Walmart projects its comps to rise 1.0%–1.5% in fiscal 1Q18, driven by growth across all store formats. The segment’s performance is also likely to be supplemented by strong e-commerce sales.

Walmex (Mexico and Central America) has been a key growth engine. On a two-year stack basis, the region reported a 15.0% growth in comps, with Mexico witnessing improved trends.

Canada and China (FXI) have also seen improved comps. Going forward, sales in China are likely to benefit from the investment in JD.com (JD).

Walmart’s Sam’s Club, which faces tough competition from Costco Wholesale (COST), is in the midst of a transitory phase aimed at driving top and bottom line results. Management expects comps (excluding fuel) to rise 1.0% in fiscal 1Q18, driven by an increase in traffic. The company’s multichannel shopping experience, Club pickup, and direct-to-home offerings bode well with consumers. Its e-commerce segment is also reporting strong sales growth.

Walmart has been investing in enhancing the consumer shopping experience through store remodeling, beefed up e-commerce offerings, and lower pricing. These factors are expected to boost sales in the coming quarters. The company remains upbeat and projects net sales to improve 2.0%–3.0% in fiscal 2018, driven by growth across its stores and digital business.

Wal-Mart Stores has a 52-week low of $62.72 and a 52-week high of $77.05. The stock has a market cap of $230.57 billion, a price-to-earnings ratio of 17.36 and a beta of 0.09. The company’s 50 day moving average is $73.85 and its 200-day moving average is $70.63.


Option Trade – Target Corporation (NYSE:TGT) Puts

Monday, May 15, 2017

** OPTION TRADE: Buy the TGT JUNE 16 2017 52.500 PUT at approximately $0.85. Sell price is left to your own judgment.

The parade of big retailers sharing their latest quarterly results has begun, and so far those reports have confirmed that the woes in the retail sector have continued. Target Corporation (NYSE:TGT), the operator of general merchandise stores, will likely join this group of underwhelming reports when it reports the results of its first-quarter on May 17.

Target Corporation is expected to post smaller earnings than a year ago, along with a revenue decline. In the period, some progress on the e-commerce front was not enough to offset troubling results that sent shares to a multiyear low.

Wall Street's consensus forecast calls for EPS at this Minneapolis-based retailer to have slipped from $1.29 in the same period of last year to $0.91.

Analysts are looking for revenue of $15.67 billion. That would be down from the $16.20 billion reported in the year-ago quarter.

Target Corporation seems to have gone from one catastrophe to the next in recent years.

A 2013 data breach affected more than 70 million customers and dampened sales over the subsequent quarters. That was followed by the company's decision to end its ill-fated expansion in Canada in 2015, which resulted in a massive $5.4 billion write-down. More recently, the company's decision to allow transgender customers to use the restroom of their choice prompted a boycott among some of its customers.

Sales and profits have also fallen in recent quarters, and the stock has gotten punished.

While the broad market trades near all-time highs, Target is down more than a third from its 52-week high and the stock has been one of the worst performers on the S&P 500 over the last year.

Influencing Factors

In recent months, Target has lost its Chief Marketing Officer, Chief Digital Officer, and the head of its grocery division. Over the last two years, the company has also seen the Chief Legal Officer, Chief Merchant, Chief Human Resources Officer, and Chief Stores Officer positions change hands.

Comparable sales, which strip out the  effects of new stores, are one of the best measurements of a retailer's performance. However, comparable sales at Target have fallen for three straight quarters after seven consecutive quarters of growth. In the key fourth quarter, store-based comparable sales dropped 3.3%, though overall comparable sales were only down 1.5% due to a 34% increase in digital sales.

Management's guidance for the current year was also underwhelming. It sees low-single digit decline in comparable sales for 2017 and low-to-mid single digit decline in comparable sales for the first quarter.

Only two of the company's 11-member executive team remains from when Cornell became CEO.

Cornell came on to replace former CEO Gregg Steinhafel, whose tenure ended after the data breach disaster. At first, the stock responded favorably to Cornell's turnaround strategy, but the recent decline in sales and profits has pushed the stock into the red.

Cornell responded to the challenge by introducing a new strategy and financial model at the most recent earnings call. The strategy includes lowering prices to make the store more competitive with Wal-Mart and other peers, a move that will cut into profits. Cornell has said the company needs to do more to fulfill the second half of its slogan, "Expect More. Pay Less."

At the same time, however, the company plans to refurbish 600 stores and open 100 smaller stores by 2019. In many ways, the strategy mimics Wal-Mart's decision in 2015 to invest in lower prices, higher wages, and cleaner stores, which cost it on the bottom line but has boosted sales. Target doesn't have the same economies of scale or other advantages that Wal-Mart has, though.

The company's plans to open new stores runs counter to the trend in much of the retail industry, which is either closing stores or scaling back on new locations.

Also, tough comparables due to the absence of its pharmacy business also remained a drag in the quarter. Target sold its pharmacy business to CVS Health (CVS) for ~$1.9 billion in December 2015.

Analysts and Hedge Funds Opinions

Despite Target’s strategic initiatives to drive its top and bottom line growth, analysts remain on the fence, as most of the positives stemming from the company’s efforts will take a couple of years’ time before meaningfully impacting its financials.

The majority of analysts covering Target are neutral on the stock. Analysts’ consensus rating on TGT was 2.9 on a scale of 1.0 (strong buy) to 5.0 (strong sell).

19.0% of analysts have recommended “buys” on Target stock, 66.0% have recommended “holds,” and 15.0% have recommended “sells.” On May 11, 2017, Target was trading at $56.06 per share, ~6.0% lower than analysts’ 12-month price target of $59.43.

Summary

Simply put, Target’s top line is expected to remain sluggish in 2017. The company made a soft start to the year as its management noted a choppy sales environment in February. Given its challenges, the company is expected to report a low to mid-single-digit comps fall in 1Q17.

Target is struggling to lift its top line on account of a slowdown in traffic. Meanwhile, its markdowns and clearances in efforts to remain competitive aren’t helping its case. The company’s planned investments into store remodeling, supply chain overhaul, new brand introductions and the enhancement of its digital capabilities will negatively impact its margins, which in turn will likely hurt its bottom line results.

According to Target’s management, the company is in a transitory phase, and its financials are likely to remain challenged in the near term. The positives from its planned investments will likely take a couple of years’ time to meaningfully impact its business.




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