“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, June 25, 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.


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ALSO "Trading Capital Management"



Options Trade - - United States Steel Corporation (NYSE:X) Calls

Thursday, June 28, 2018

** OPTION TRADE: Buy X JULY 20 2018 35.000 CALL at approximately $1.35 each TO $1.40. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $2.70.

Also include a protective stop loss of $0.55.)

Shares of United States Steel Corporation (NYSE:X), an integrated steel producer, despite having been in a rocky sideways pattern since its big retreat back in March, has actually been red-hot over the past year, surging nearly 60%. But looking at the downside, X has seen a floor of support at the $33 mark, while simultaneously bouncing off the 200-day moving average.

The last five times X has pulled back to this trendline after a lengthy stay above it, the stock has gone on to average a one-month gain of 17.8%, posting positive returns all but one time. Based on its current position, another move of this magnitude would put the shares back near the $41.00 mark.

Influencing Factors

Driving the gains mentioned above has been a significant improvement in the company's earnings due to higher steel prices. In the first quarter, the steelmaker reported $57 million, or $0.32 per share, of adjusted earnings, which was a vast improvement from the adjusted loss of $145 million, or $0.83 per share, it reported in the year-ago quarter.

The main driver of that improvement has been an uptick in steel prices, which is due primarily to the Trump administration's decision to impose tariffs on steel – whether this last or not is anyones guess – therefore the short expiry date to capture the moment.  While those tariffs will likely act as a tailwind to steel prices in the near term, the resulting higher prices, when combined with the continuing trade war, could slow the global economy and impact demand for steel, which could affect U.S. Steel's stock going forward.

Reasons to be Bullish…..

  • Steel prices have improved significantly over the past year on the threat of tariffs.
  • Shipments have improved, increasing 5% year over year in the first quarter due to a stronger global economy.
  • Also, U.S. Steel has been working hard to drive out costs and improve operations via its Carnegie Way plan, which has included using its increased profitability to pay down debt and reduce interest expenses.
Moving Forward…..

U.S. Steel currently believes that the above bullish tailwinds will grow stronger over the course of the year. Because of that, the company estimates that its adjusted EBITDA will rise from $255 million in the first quarter to $400 million in the current quarter before averaging about $550 million in the second half of the year.

Analysts and Hedge Funds Opinions

United States Steel had its price objective upped by Citigroup from $42.00 to $45.00 in a research note issued to investors on Tuesday, June 12th. The firm currently has a buy rating on the basic materials company’s stock.

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

  • Bank of America raised shares of United States Steel from a “neutral” rating to a “buy” rating and set a $50.00 price objective for the company in a report on Friday, April 27th.
  • Argus restated a buy rating and issued a $52.00 price target (up from $41.00) on shares of United States Steel in a report on Wednesday, February 21st.
  • Finally, Credit Suisse Group increased their target price on shares of United States Steel from $48.00 to $55.00 and gave the stock an “outperform” rating in a research note on Thursday, March 8th.

Three research analysts have rated the stock with a sell rating, nine have assigned a hold rating and eleven have issued a buy rating to the company. The stock has an average rating of “Hold” and a consensus price target of $44.17.

Insider News……

CFO Kevin Bradley purchased 10,000 shares of United States Steel stock in a transaction dated Tuesday, May 1st. The shares were acquired at an average price of $32.42 per share, for a total transaction of $324,200.00.

Summary

Looking at the earnings run rate, U.S. Steel's stock sells for a mere 3.5 times its enterprise value to EBITDA . For comparison's sake, that's about half the level of rival Nucor (NYSE: NUE) , suggesting that U.S. Steel's stock could have much further to run if steel prices and demand hold up.

X has a market cap of $6.10 billion, a PE ratio of 17.77, a price-to-earnings-growth ratio of 0.80 and a beta of 3.03. United States Steel Co. has a 1 year low of $20.67 and a 1 year high of $47.64. The company has a debt-to-equity ratio of 0.75, a quick ratio of 1.02 and a current ratio of 1.63.


Options Trade - - GrubHub Inc (NYSE:GRUB) Calls

Tuesday, June 26, 2018

** OPTION TRADE: Buy GRUB JULY 20 2018 110.000 CALL at approximately $1.45 each TO $1.50. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $2.90.

Also include a protective stop loss of $0.60.)

GrubHub Inc (NYSE:GRUB), a provider of an online and mobile platform for restaurant pick-up and delivery orders, stock fell 9.9% in the week ended June 22 to close at $106.98; and again yesterday by 4.86% ($5.20) to $101.78; which now makes it quite oversold.

The stock has generated returns of 131.0% in the last 12 months and 4.2% in the last month after gaining 91.0% in 2017. GrubHub stock is trading 150.00% above its 52-week low of $42.42 and roughly16.00% below its 52-week high of $120.07.

Last week saw no significant news that contributed to GrubHub’s decline. It seems that investors had booked some profits after a stellar 18-month run. Yesterday saw the decline continue along with the rest of the market. A positive view in regard to market direction today can be read here.

Influencing Factors

GrubHub’s earnings per share have grown from $0.59 in fiscal 2015 to $0.91 in fiscal 2016 and $1.14 in fiscal 2017. Analysts expect its EPS to rise to $1.75 in fiscal 2018 and $2.10 in fiscal 2019. Analysts expect the company’s EPS to rise at a CAGR (compound annual growth rate) of 30.5% over the next five years.

Moving Forward…..

GrubHub has more than 80,000 restaurants on its platform, and about 400,000 orders are placed each day. GrubHub’s revenues have increased from $361.0 million in fiscal 2015 to $493.0 million in fiscal 2016 and $680.0 million in fiscal 2017. Analysts expect the company to post revenues of $959.0 million in fiscal 2018 and ~$1.2 billion in fiscal 2019.

Analysts and Hedge Funds Opinions

Analysts expect GrubHub to partner with restaurants and provide food order functionality on mobile applications. Oppenheimer analyst Jason Helfstein increased the 12-month price target on the stock to $130 from $100. Helfstein stated, “We see opportunity for GRUB to leverage capabilities in UI, personalization/loyalty and digital marketing to power mobile apps for many large chain restaurants.”

He sees a market opportunity of $169 billion including in-store and takeout orders. Helstein also said that GrubHub's customer acquisition costs have been stable recently, even though the company has been ramping up ad spend. "Directionally, we believe this indicates impressive marketing efficiency, bullish in our view, given the level of competition in the space," he wrote.

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

  • Craig Hallum upped their price objective on GrubHub from $110.00 to $140.00 and gave the company a “buy” rating in a report on Monday, June 18th.
  • MED upped their price objective on GrubHub from $100.00 to $130.00 and gave the company an “outperform” rating in a report on Thursday, June 14th.
  • Canaccord Genuity reiterated a “buy” rating and issued a $130.00 price objective on shares of GrubHub in a report on Thursday, May 31st.
  • Finally, Wells Fargo & Co upped their price objective on GrubHub from $90.00 to $95.00 and gave the company a “market perform” rating in a report on Wednesday, May 30th.

Of the 26 analysts covering GrubHub, 13 recommended a “buy,” 12 recommended a “hold,” and one recommended a “sell.” The stock is trading at a discount of 3.0% compared to the analysts’ median price target of $110.00.

Summary

GrubHub has a quick ratio of 2.10, a current ratio of 2.10 and a debt-to-equity ratio of 0.12. The stock has a market cap of $9.65 billion, a PE ratio of 103.86, a PEG ratio of 3.39 and a beta of 0.99. GrubHub Inc has a fifty-two week low of $42.42 and a fifty-two week high of $120.07.






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