“Cut-to-the-Chase” Recommendations
Week Beginning Monday, May 22, 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 – GameStop Corp. (NYSE:GME) Calls

Thursday, May 25, 2017

** OPTION TRADE: Buy the GME JUNE 16 2017 24.000 CALL at approximately $0.60. Sell price is left to your own judgment.

GameStop Corp. (NYSE:GME), operating as an omnichannel video game retailer, to report earnings on May, 25 after the close. They expect $0.52 EPS, down 21.21 % or $0.14 from last year’s $0.66 per share. GME’s profit will be $52.32M for 10.89 P/E if the $0.52 EPS becomes a reality.

In the preceding quarter, the company's earnings surpassed the Consensus Estimate by 3.9%.

Notably, the company surpassed the Consensus Estimate with a positive earnings surprise of 5.1% in the trailing four quarters.

GameStop's foray into the collectibles and licensed merchandising category, and Technology Brands has been profitable. During the fiscal fourth quarter, the collectibles business sales surged 27.8% to $212.4 million buoyed by robust sales of Pokémon-related toys and apparel.

GameStop has started to show signs of resurgence, with the stock rising more than 16% in one month.

This is a result of strong sales of Nintendo Switch and the hope that Sony could soon announce the launch of the PlayStation 5.

Influencing Factors

GameStop and video games are on fire – which will likely be attributed greatly by Nintendo Co., Ltd (ADR) (OTCMKTS: NTDOY).

Nintendo's newest gaming console, the Switch, has been absolutely on fire. At first, it was just speculation as GME management said the Switch is so popular that it will be “chasing supply “all year.   

But that speculation has materialized into hard data, and that is changing the entire outlook on the video game industry. After 9 months of declines, video game sales soared 24% in March, with Switch leading the resurgence. That data was backed up by bullish commentary from Target Corporation (NYSE: TGT), where management said that the launch of the Nintendo Switch served as a huge tailwind for their video game business last quarter.

The most obvious winner here: GME stock. As the go-to retailer for video games, GameSpot figures to be the go-to retailer for red-hot Switch video games.

Nintendo Switch is just the first in a series of new-generation gaming consoles (PlayStation VR and Xbox Scorpio) that are changing the videogame landscape. As AR/VR enhancements become more regularly integrated into gaming consoles, the video game industry's long-term outlook grows rosier.

GameStop also has Tech Brands and Collectibles. These are GME's lesser-known, hyper-growth alternative retail concepts that should help offset software declines. The Tech Brands business, which sells smartphone-oriented products and services, is perfectly positioned to grow for multiple years as the mobile shift continues. Meanwhile, the Collectibles business, which sells toys and miniatures, has an equally promising growth outlook. While you can download games, you can't really download physical toys.

Analysts and Hedge Funds Opinions

Wedbush set a $25.00 target price on GameStop Corp. and gave the company a “buy” rating in a report on Saturday, March 25th. Mizuho reissued a “buy” rating and issued a $27.00 target price on shares of GameStop Corp. in a report on Tuesday, April 18th.

Among 19 analysts covering GameStop Corp., 10 have Buy rating, 1 Sell and 8 Hold. The stock has an average rating of “Perform” and a consensus target price of $25.86.

Also, Oregon Public Employees Retirement Fund raised its position in shares of GameStop Corp. by 1.4% during the first quarter, according to its most recent Form 13F filing with the Securities and Exchange Commission.

As well, investor’s sentiment increased to 0.97 in 2016 Q4 and is now up 0.11, from 0.86 in 2016Q3.

Summary

If the Nintendo Switch is a sign of things to come, then GME stock has a really bright future.

GameStop Corp. has a market cap of $2.29 billion, a PE ratio of 6.66 and a beta of 1.18. The company’s 50-day moving average price is $23.26 and its 200-day moving average price is $24.14. GameStop Corp. has a 52-week low of $20.10 and a 52-week high of $32.67.


Option Trade – PVH Corp (NYSE:PVH) Calls

Wednesday, May 24, 2017

** OPTION TRADE: Buy the PVH JUNE 16 2017 110.000 CALL at approximately $0.85. Sell price is left to your own judgment

PVH Corp (NYSE:PVH), the owner of Calvin Klein, Tommy Hilfiger and Speedo brands, is expected to beat expectations when it reports first-quarter fiscal 2017 results today, after the market closes, May 24.

Last quarter, PVH Corp. posted a positive earnings surprise of 0.8%. In fact, the company has outperformed the Consensus Estimate by an average of 7.1% in the trailing four quarters, with a beat in each quarter. Moreover, the company has a solid surprise history with earnings beat in 11 straight quarters.

For first-quarter fiscal 2017, the company expects total revenue to jump 2% year over year, while it is anticipated to advance 4%, on a constant-currency basis. Adjusted earnings per share for the first quarter are expected to be $1.58-$1.60, including 10 cents per share negative impact from currency translations.

The Consensus Estimate for both fiscal 2017 and fiscal 2018 has witnessed an uptrend in the last 30 days. While the current Consensus Estimate of $1.60 per share for the first quarter has been stable ahead of the earnings release, it reflects a year-over-year increase of 6.5%. Moreover, analysts expect revenues of $1.96 billion, up nearly 2% from the year-ago quarter. These factors usher in confidence about the company's ongoing prospects thus making us optimistic about its upcoming results.

For fiscal 2017, the EPS is projected to be $7.30–$7.40—increasing 8.1% at the mid-point. Currency headwinds will likely cut $0.40 from its earnings. Wall Street analysts expect an 8.7% increase in the company’s EPS in fiscal 2017.

For the year, the operating margin is projected to increase by around 30 to 40 basis points on a constant currency basis and 10 to 20 basis points on a reported basis. Operating margin gains of around 75 basis points (on a reported basis) from Tommy Hilfiger are expected to be partially washed away by a 30 to 40 point decline in Calvin Klein’s margins.

Influencing Factors

PVH Corp’s international business, which remained strong over the last year, is expected to show strength throughout 2017.

PVH Corp. has mainly been gaining from the strong performance of its Calvin Klein and Tommy Hilfiger brands, which helped deliver strong results amid tough macroeconomic conditions.

Calvin Klein’s revenues will likely grow 7%, while Tommy Hilfiger’s sales are expected to rise 4% on a constant currency basis.

Further, the company's solid business strategies and ongoing investments in top-quality brands, along with focus on global expansion bode well.

PVH Corp. has outperformed the broader industry year to date. The company's shares jumped 9.7%, outperforming the categorized Textile-Apparel industry's decline of 6.6%.

Not only this, the company's diversified portfolio allows it to stay ahead of its peers, generate above-average industry growth and sustain its position in the current challenging environment.

PVH Corp.'s approach to brand management facilitates each of its brands to develop further through efficient marketing strategies, financial control and operating leverage. Moreover, focus on higher-margin businesses through buyouts and divestments augur well.

Analysts and Hedge Funds Opinions

PVH Corp was upgraded by Zacks Investment Research from a “hold” rating to a “buy” rating in a report released on Monday. The brokerage currently has a $112.00 target price on the textile maker’s stock. Zacks Investment Research‘s price objective suggests a potential upside of 11.54% from the company’s previous close.

According to Zacks, “PVH Corp. has outperformed the broader industry year to date. The company has been doing well on the back of superb earnings history and brand strength. The company's diversified portfolio allows it to stay ahead of its peers, generate above-average industry growth and sustain its position in the current challenging environment. PVH’s approach to brand management facilitates each of its brands to develop further through efficient marketing strategies, financial control and operating leverage. Further, focus on higher-margin businesses through buyouts and divestments bode well. These factors helped the company to post its 11th consecutive earnings beat and second sales beat in fourth-quarter fiscal 2016. However, management expects currency woes, along with a volatile retail scenario to remain deterrents in fiscal 2017. First quarter estimates have been stable lately ahead of the earnings release.”

Also, B. Riley reissued a “buy” rating and set a $125.00 price target on shares of PVH Corp in a research report on Sunday, April 9th. Piper Jaffray Companies reissued an “overweight” rating and set a $112.00 price target on shares of PVH Corp in a research report on Thursday, March 23rd. Cowen and Company increased their price target on shares of PVH Corp from $108.00 to $118.00 and gave the company a “buy” rating in a research report on Thursday, March 23rd. Wunderlich reiterated a “buy” rating and set a $125.00 price objective on shares of PVH Corp in a report on Saturday, March 25th.

Four research analysts have rated the stock with a hold rating and thirteen have assigned a buy rating to the stock. PVH Corp presently has an average rating of “Buy” and a consensus price target of $118.20.

Summary           

PVH Corp.'s solid 2016 show even in the face of an uncertain macro environment keeps management impressed. Management believes that the company's superb execution, continued investments in brands and international platforms kept it going. Also, keeping pace with the evolving trends and undertaking necessary initiatives to stay afloat in the current business scenario helped PVH sustain its momentum. Evidently, PVH Corp.'s recent deal to acquire True&Co (direct-to-consumer intimate apparel online retailer), underscores its focus on making innovations and enriching consumer experience.

PVH Corp has a 50-day moving average of $101.16 and a 200-day moving average of $97.64. The stock has a market capitalization of $8.01 billion, a P/E ratio of 15.08 and a beta of 0.67. PVH Corp has a 12-month low of $83.80 and a 12-month high of $115.40.


Option Trade – Chico's FAS, Inc. (NYSE:CHS) Puts

Tuesday, May 16, 2017

** OPTION TRADE: Buy the CHS JUNE 16 2017 11.000 put at approximately $0.50. Sell price is left to your own judgment.

Chico's FAS, Inc. (NYSE:CHS), a specialty retailer of women’s private branded, casual-to-dressy clothing, intimates, complementary accessories and other non-clothing items operating under the Chico’s, White House Black Market (WHBM) and Soma brand names, is slated to release first-quarter fiscal 2017 results on May 24.

The current Consensus Estimate for the quarter under review is 29 cents, reflecting a year-over year increase of 15.1%. Further, it is noted that the Consensus Estimate been stable in the past 30 days. However, analysts expect revenues of $625.4 million, down about 2.7% from the year-ago quarter.

Influencing Factors

Chico's has been gaining from its solid focus on cost control and operating efficiency endeavors, which were declared in May 2016. Further, the company remains on track with other organizational developments, brand-specific initiatives and fresh merchandising efforts. Backed by these efforts, along with the company's supply-chain initiatives, management expects improvements in margins and SG&A expenses in fiscal 2017. However, the company expects fiscal 2017 comps to dip at a low single-digit percentage rate, owing to its constant efforts toward rationalizing promotional activities.

Moreover, a tough retail scenario and sluggish mall traffic continues to pose concerns for Chico's, as these hurdles have been plaguing most retailers' performances.

While the aforementioned growth factors boosted Chico's results and stock price in the past one year, it is noted that investors have turned bearish on the company of late, as shares of the company have tumbled nearly 12% over the past one week. 

Moreover, Chico's has slumped 21.8% over the last three months, underperforming the Retail - Apparel/Shoes industry's decline of 12.5%. Clearly, investors appear apprehensive about Chico's, as it gets closer to announcing its first-quarter fiscal 2017 results.

Analysts and Hedge Funds Opinions

Zacks Investment Research downgraded shares of Chico's FAS, Inc. from a hold rating to a sell rating in a report released on Thursday morning.

Macquarie Group Ltd. cut its position in Chico's FAS, Inc. by 19.0% during the fourth quarter, according to its most recent filing with the Securities and Exchange Commission (SEC). The institutional investor owned 83,906 shares of the specialty retailer’s stock after selling 19,682 shares during the period. Macquarie Group Ltd. owned approximately 0.07% of Chico's FAS worth $1,207,000 as of its most recent SEC filing.

Chicos Fas Inc institutional sentiment decreased to 0.79 in 2016 Q4. Its down -0.26, from 1.05 in 2016Q3. The ratio is negative, as 96 investment managers opened new or increased holdings, while 122 sold and trimmed stakes in Chicos Fas Inc.

As well, Director Ross E. Roeder sold 19,926 shares of the business’s stock in a transaction on Thursday, March 2nd.

Also, insider Colaco Donna Noce sold 51,235 shares of the business’s stock in a transaction on Wednesday, March 29th.

Summary

Chico's FAS has a one year low of $9.86 and a one year high of $16.85. The stock has a 50 day moving average of $13.32 and a 200-day moving average of $14.03. The firm has a market capitalization of $1.44 billion, a price-to-earnings ratio of 16.58 and a beta of 0.82.


Option Trade – Tiffany & Co. (NYSE:TIF) Calls

Tuesday, May 16, 2017

** OPTION TRADE: Buy the TIF JUNE 16 2017 100.000 CALL at approximately $0.55. Sell price is left to your own judgment.

Luxury jeweler, Tiffany & Co. (NYSE:TIF), is slated to report first-quarter fiscal 2017 results on May 24.

Tiffany shares have rebounded lately, after the luxury retailer posted decent quarterly results in March and predicted a return to sales growth in fiscal 2017. Sure, sales dropped 3% worldwide over the holiday season because of what management described as softness across all its jewelry categories, but the combination of falling costs and rising prices helped push gross margin up nearly two percentage points to 62% of sales, protecting bottom-line profitability.

Executives aren't expecting general selling conditions to improve much in the new fiscal year, but the company does believe sales growth will return in 2017 following two straight years of declines. A roughly 9% increase in earnings, meanwhile, would put the company within striking distance of the $484 million it earned in 2015, its most profitable year on record.

After a mixed FY 2016, management expects the luxury jewelry company to bounce back with low single-digit sales growth in FY 2017. On the bottom line things are expected to be a little rosier, with high single-digit earnings per share growth. Whilst this arguably makes the company investment-worthy already, expect the company to outperform its full-year guidance.

Therefore, luxury retail isn't dead after all. It seems America's wealthiest individuals are very confident about the economy and in a mood to spend their cash accumulated through rising stock markets.

Goldman Sachs analyst Lindsay Drucker Mann upgraded TIF stock May 12 to a "buy" from "neutral" and raised its 12-month price target from $82 to $107 as a result of accelerating luxury sales and growing free cash flow.

The investment bank bases its opinion on data from a survey of 2,000 consumers, which shows the wealthy are more upbeat about the economy than less affluent individuals.

According to Mann , "This improvement is attributed to re-accelerating growth in consumer net worth driven by higher equity market values, with the benefits accruing disproportionately to higher-income consumers." She also clarified that, "TIF offers unique exposure to a resurgence in luxury, driven by improved international tourist spending and a firming high-end U.S. consumer."

Drucker Mann believes the company can deliver higher free cash flow through lower product costs (diamond prices lower these days) and better inventory management (turning inventory more frequently).

In fiscal 2016, Tiffany's gross margins were 62.2%, 150 basis points higher than a year earlier. In fiscal 2017, it expects gross margins to continue rising due to lower product costs along with higher revenues and price points.

Influencing Factors

There's an obvious reason for Tiffany's strength this year--it's perceived to be somewhat immune from Amazon.com (AMZN) dominance, as shoppers still appear reluctant to buy their diamonds online.

Tiffany's omni-channel platform, store expansion programs, tapping of new markets and venturing into new revenue generating avenues have helped improve performance, as evident from the positive earnings surprises delivered in the past three quarters. These enabled the stock to outpace the industry in the past six months. In the said time frame, the stock has surged 17.3%, while the categorized Retail-Jewelry Stores industry has declined 5%.

Management had earlier pointed that though macroeconomic headwinds will prevail in fiscal 2017, it will counter the same through strategic initiatives and cost containment efforts.

With the U.S. dollar weakening and Chinese retail sales booming, there's a good chance the jeweler could surprise the market in the year ahead.

Tiffany itself prepared for the Trump trade to cause the currency to strengthen greatly by increasing the price of its jewelry around the world in order to cushion the blow. But with the dollar now retreating, this move is paying off handsomely for the company.

Chinese consumers have started to buy luxury goods once again as recent data out of China paints a promising picture of the retail sector in the world's second-largest economy.

Tiffany's Fifth Avenue store is believed to account for approximately 20% of its U.S. sales, or around 10% of its total revenue. Furthermore, tourists make up an estimated 40% of these Fifth Avenue sales. Clearly tourists have a huge say in the company's performance and it is pleasing to see things looking positive in that regard right now.

Analysts and Hedge Funds Opinions

Jefferies Group LLC reaffirmed their buy rating on shares of Tiffany & Co. (NYSE:TIF) in a research report sent to investors on Tuesday, May 2nd. The brokerage currently has a $110.00 price objective on the specialty retailer’s stock.

And, Tiffany & Co. shares were upgraded to "buy" from "hold" by analysts at Goldman Sachs Friday who are bullish on the luxury retail sector.

Goldman pins the rise in luxury spending on increased tourist spending and higher consumer net worth and equity market values.

"This momentum is evident in a healthy first-quarter acceleration in sales growth reported by luxury peers, which has historically been a good coincident indicator for Tiffany comp sales," Goldman analyst Lindsay Drucker Mann wrote.

The firm is also bullish on the firm's new leadership, which includes three new board members and a yet-to-be-named new CEO.

Also, Cowen's Oliver Chen and team see Tiffany reporting first-quarter earnings that meet analyst expectations and call its 2017 guidance "achievable." They explain:

    Ahead of 1Q earnings on 5/24, we maintain Outperform on TIF with $107 PT as we expect an in-line 1Q print and believe FY17 guidance remains achievable with potential upside. We believe consensus estimates for the full year still appear prudent given Street is modeling gross margin at 62.8% (+60bps) and operating margin at 19.2% (+20bps), yielding EPS of $3.97E (+6% y/y). While we forecast our FY17 estimates largely in-line with Street, we think TIF could deliver a healthy upside to ours and Street’s full year estimates driven by: (1) multiple revenue catalysts supporting overall comp growth at a +LSD rate (see page 3); (2) gross margin improving on favorable input costs expected through 2017, pricing increases taken in February, and the launch of higher-margin luxury accessories collection slated for Fall 2017, plus tighter inventory management; and (3) ongoing solid cost discipline. We calculate each incremental operating margin improvement of +20bps could yield additional EPS of ~+4c or (+1% pt of growth) vs. our base case est. 19.3% op margin yielding EPS growth at +6% y/y. Our valuation on TIF is based on 23x our 2018E EPS of $4.58E.

Horan Capital Management bought a new stake in shares of Tiffany & Co. during the third quarter valued at approximately $1,405,000.

Also, Rockland Trust Co. increased its stake in Tiffany & Co. by 5.8% in the third quarter. Rockland Trust Co. now owns 101,229 shares of the specialty retailer’s stock worth $7,352,000 after buying an additional 5,589 shares during the period.

Summary

So with a weak dollar, strong retail sales in China, sustained margin strength, and global price increases, it is believed that Tiffany is positioned to deliver a stronger-than-expected full-year result in FY 2017.

Tiffany & Co.’s 50 day moving average is $92.36 and its 200-day moving average is $85.13. Tiffany & Co. has a 12-month low of $56.99 and a 12-month high of $97.29. The stock has a market capitalization of $11.70 billion, a PE ratio of 26.46 and a beta of 1.89.




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