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.
You may also wish to read Stock Options Made Easy Trading Philosophy
ALSO "Trading Capital Management"
Options Trade - - CarMax, Inc. (NYSE:KMX) Calls
Thursday, July 05, 2018
** OPTION TRADE: Buy KMX AUG 17 2018 77.500 CALL at approximately $1.20. Sell price is left to your own judgment.
(or alternatively : Place a pre-determined sell at $2.40.
Also include a protective stop loss of $0.50.)
Auto retailer CarMax, Inc. (NYSE:KMX) was a big mover after reporting earnings on Friday, June 22. The company saw its shares rise almost 13% on Friday. The move came on solid volume too with far more shares changing hands than in a normal session. This continues the recent uptrend for the company—as the stock is now up 19.2% in the past one-month time frame.
The good part of this scenario was that “Earnings Predictions” members were recommended to buy this option on Monday, June 18; and had the chance to make potential profit of 373%.
But actually the best part is that after peaking at $80.19 Carmax pulled back to a low on June 29, of $72.82; providing another opportunity to execute an options trade.
CarMax is the nation's largest auto retailer, and that scale gives it major advantages over local and regional competitors.
Looking at the earnings report…..
Revenue inched higher thanks to a growing store base as CarMax's sales at existing locations dipped for the second straight quarter due to reduced shopper traffic. Profitability held steady, though, and sales trends improved when compared to the prior quarter.
Comparable-store sales dropped 2.3%. Yet that result was a big improvement from the prior quarter, which included an 8% comps slump.
Gross profit held steady at $2,200 per used vehicle.
The retailer opened three new stores, two of which were in existing markets, and one, in Greenville, North Carolina, representing a new market entry.
CarMax spent over $200 million repurchasing shares, and the falling share count allowed per-share earnings to expand by 18% even as net income rose by a more modest 13%.Moving Forward…..
CEO Bill Nash and his team are waiting for the pricing challenges to naturally lessen over time, so meanwhile they're focused on extending their scale advantage by adding stores to the sales base. CarMax is targeting 15 new locations this fiscal year to roughly match the robust expansion pace from 2017. Perhaps reflecting the softer selling conditions, the retailer is shifting its growth plans a bit so that they favor smaller markets over the larger, more competitive metropolitan areas.
That growth strategy is the best way CarMax
can press its advantage in the fragmented used car industry. Not only does it
make advertising spending more efficient, but the bigger sales base also gives
the retailer a leg up on local rivals in the digital sales channel, which
smaller companies aren't able to target nearly as aggressively.
Analysts and Hedge Funds Opinions
Meanwhile, analysts are upping their price targets…..
Northcoast Research analyst John Healy reiterated a Buy rating on CarMax on June 25 and set a price target of $85.
Also, CarMax had its target price lifted by Wedbush from $75.00 to $85.00 in a research note released on Monday. They currently have an outperform rating on the stock. Wedbush also issued estimates for CarMax’s Q4 2019 earnings at $1.06 EPS, FY2019 earnings at $4.56 EPS, Q1 2020 earnings at $1.50 EPS, Q2 2020 earnings at $1.33 EPS, Q3 2020 earnings at $1.08 EPS and FY2020 earnings at $5.09 EPS.
As well, CarMax was upgraded by research analysts at ValuEngine from a “hold” rating to a “buy” rating recently.
Currently, the analyst consensus on CarMax is a Moderate Buy with an average price target of $83.78, a 12.7% upside from current levels. In a report issued on June 22, Oppenheimer also assigned a Buy rating to the stock with an $88 price target.Insider News……
Director Peter J. Bensen purchased 5,000 shares of the firm’s stock in a transaction dated Friday, April 6th. The shares were acquired at an average price of $62.12 per share, with a total value of $310,600.00. Following the purchase, the director now directly owns 5,165 shares of the company’s stock, valued at $320,849.80.
CarMax stock has a market cap of $13.28 billion, a P/E ratio of 19.69, a P/E/G ratio of 1.12 and a beta of 1.56. CarMax has a 1 year low of $57.05 and a 1 year high of $81.67. The company has a current ratio of 2.30, a quick ratio of 0.54 and a debt-to-equity ratio of 3.80.
Options Trade - - Walgreens Boots Alliance Inc (NASDAQ:WBA) Puts
Tuesday, July 03, 2018
** OPTION TRADE: Buy WBA AUG 17 2018 60.000 PUT at approximately $1.70. Sell price is left to your own judgment.
(or alternatively : Place a pre-determined sell at $3.40.
Also include a protective stop loss of $0.70.)
Walgreens Boots Alliance Inc. (NASDAQ:WBA), a global pharmacy-led, health and wellbeing enterprise, plummeted last Thursday after joining the DOW. However, the company outperformed expectations on both top and bottom lines for its May-ended fiscal Q3 report, with $1.53 per share on $34.33 billion topping the $1.47 per share and $33.65 billion, respectively.
But same-store sales disappointed in the quarter, however. Guidance was not raised on the top end for fiscal 2018, though it was ratcheted up on the bottom end of the range.
But a much more negative sentiment for Walgreens was based on news that Amazon is buying its way into the retail pharma space, announcing the purchase of online pharma service company PillPack. This private firm, founded in 2013, pre-sorts prescriptions and delivers them to patients' homes.
Yesterday, analyst Ann Hynes of brokerage firm Mizuho downgraded Walgreens Boots Alliance to "neutral" from "buy," and dropped its price target to $64 from $77. The bear note was all about Amazon's (AMZN) push into the pharmacy space following last week's PillPack purchase. For example, Mizuho believes the growing threat of Amazon will keep weighing on valuation and sentiment.
Mizuho's downgrade is just the latest in a string of bear notes that were a big reason for Walgreens' 11.2% sell-off last week -- its worst week since August 2014.
Joining the downgrades, Pivotal Research analyst Ajay Jain reiterated a Hold rating on Walgreens Boots Alliance (NASDAQ: WBA) yesterday and set a price target of $60.
Jain commented: “We have lowered our price target from $70 to $60. Following the announcement of the PillPack acquisition by Amazon, WBA is riding the perfect storm of disappointing news.”
Another worrying factor is the comment from Walgreens Boots CEO Stefano Pessina when asked about Amazon’s acquisition of online pharmacy PillPack during Walgreens' Q3 earnings call Thursday morning…..
"We are not particularly worried."
While Pessina was speaking, the company he leads was quickly losing more than $6 billion of its market cap -- nearly 10% -- from the threat he wasn't worried about.
Investors clearly are worried. One major investment firm, Bank of America Merrill Lynch, recommended selling Walgreens Boots Alliance stock, in part because of the potential challenge from Amazon.
Walgreens might be overestimating the strength of its moat with respect to the complexity of the pharmacy business. Yes, there are lots of regulations with selling and distributing prescription drugs. However, there are also plenty of people with the expertise to navigate these regulations -- and Amazon has plenty of money to hire them.Summary
Walgreens might be overestimating the strength of its moat with respect to the complexity of the pharmacy business. Yes, there are lots of regulations with selling and distributing prescription drugs. However, there are also plenty of people with the expertise to navigate these regulations -- and Amazon has plenty of money to hire them.
Options Trade - - Activision Blizzard, Inc. (NASDAQ:ATVI) Calls
Monday, July 02, 2018
** OPTION TRADE: Buy ATVI AUG 17 2018 80.000 CALL at approximately $2.00 each TO $2.10. Sell price is left to your own judgment.
(or alternatively : Place a pre-determined sell at $4.00.
Also include a protective stop loss of $0.80.)
Activision Blizzard, Inc. (NASDAQ:ATVI), a publisher of online, personal computer, console, handheld, mobile and tablet games, came close to setting a record high earlier last month, extending a mid-May bounce off its 200-day moving average. The shares have more recently consolidated near another trendline that's had bullish implications in the past, suggesting ATVI could be headed on its next leg higher.
Specifically, the pullback has the shares trading near their 40-day moving average, which has been ushering ATVI higher since early May.
Activision Blizzard is already a big company with a $59 billion market cap - and if video games go 100% digital, it is very likely to get a whole lot bigger.
"It is a certainty that videogames will be approximately 100% digital in the coming years," Piper Jaffray analysts wrote on June 25. "While exact timing is hard to pinpoint, we think 2022 is a realistic expectation."
Should this come about as predicted, ATVI's margins would get fatter than they already are - some suggesting they'll grow by as much as ten percentage points for both gross profits and operating profits.
If that's the case, ATVI's operating margin will return to the high 20's, a level not seen since 2015.
"Applying modest (5% or less) top line growth and the positive margin impact, 2022 publisher earnings per share would be more than double what each just reported for 2017," Piper Jaffray added.
With Activision Blizzard's free cash flow at record levels; it's hard to imagine ATVI stock not going higher under this scenario.Summary
Increasing the equity's chances of a near-term rally is the potential for seasonal tailwinds. Activision Blizzard has been one of the best stocks to own in July over the past 10 years, averaging a monthly return of 5.28%, and boasting a 90% win rate.
There's certainly room for analysts to upwardly revise their ratings on a stock that's already up 21.8% year-to-date. While five of the 22 covering brokerages still maintain a tepid "hold" rating on ATVI, the average 12-month price target of $77.62 stands in line with current levels.