“Cut-to-the-Chase” Recommendations
- Week Beginning August 15, 2016 -

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.

Monday, 15th August, 2016
Dicks Sporting Goods Inc (NYSE:DKS) Calls

**OPTION TRADE: Buy the DKS SEPT 16 2016 57.500 call at approximately $1.20. Sell price is left to your own judgment.

Dicks Sporting Goods Inc (NYSE: DKS), a sporting goods retailer offering an assortment of brand name sporting goods equipment, apparel and footwear in a specialty store environment, will report its second-quarter numbers before the market opens on August 16.

Analysts are looking for Dick's to post earnings of 68 cents per share with revenues of $1.88 billion.

For the 2015 second quarter, the company reported earnings and revenue of 77 cents per share and $1.82 billion.

Dick's Sporting is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings-with the most up-to-date information possible-is a pretty good indicator of some favorable trends underneath the surface for DKS in this report.

Investment analysts at SunTrust Banks upped their Q4 2017 earnings estimates for Dick’s Sporting Goods in a research note issued to investors last Wednesday. SunTrust Banks analyst D. Magee now forecasts that the brokerage will earn $1.28 per share for the quarter, up from their previous forecast of $1.24.

Dick’s has been enjoying a strong run over the last few months, fueled in part by an impressive earnings report back in May. If the company is able to follow that up with another set of solid numbers for its most recent quarter, the stock should continue to build on its recent gains. If the company is able to report earnings in-line with the consensus the stock will trend higher, while an earnings beat will likely result in a big jump in shares.

The athleisure fashion trend has helped drive sales for sporting goods companies, and should continue to benefit Dick’s moving forward. The stock has a reasonable P/E of 19.3, and while earnings are forecast to fall by 1.4% during the current year, they are forecast to rise 22.6% next year, which would continue to keep the stock moving higher.

The stock is up an impressive 54.5% on the year.

Why Dicks Sporting Goods Inc?

Dicks Sporting Goods Inc has a favorable risk to reward profile, at least according to Michael Lasser of UBS.

In a report published Friday, Lasser said Dicks' upcoming second quarter earnings print (August 16) could "set the stage for a string of accelerating gains." The analyst believes that at this point, the company's second quarter print is actually an "after-thought" compared to the "compelling" investment case.

Lasser is estimating Dicks' second quarter comps will decline by just 1.5 percent, which is at the better end of management's guidance for a 1 to 4 percent decline. The second quarter's performance wasn't as severely impacted by The Sports Authority's liquidations as originally assumed, which presents the case for upside.

Looking forward, Dicks is in good position to benefit from several quarters of "meaningful" share gains which will result in "outsized" sales and earnings per share growth. In addition, the company's forward looking guidance and commentary "could surprise how quickly its benefiting from industry consolidation."

Finally, Lasser suggested that the 31 stores Dicks acquired from TSA will prove to be "far greater than average" in terms of productivity and this isn't factored into the analyst's model and could add $0.15 to $0.20 in incremental earnings per share next year. This could generate upside compared to the consensus estimate of $3.47.

Bottom line, Dicks' is demonstrating "an improving competitive positioning" and the "risk/reward paradigm" is in the company's favor at current levels.

Shares remain Buy rated with a price target raised to $61 from a previous $57.

Credit Suisse analysts said that there's "a lot to be excited about" when the company reports 2016 second quarter results. The stock offers several near-term upsides as a result of Sports Authority closing, as well as possibility better results in the second half of this year.

The firm projects Dick's to post earnings of 70 cents per share, which is above consensus estimates. For the third quarter, the firm expects earnings to be flat or down 2%.

Separately, TheStreet Ratings has this to say about the recommendation:

We rate Dicks Sporting Goods Inc as a Buy with a ratings score of B. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, and increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had subpar growth in net income.

One investment analyst has rated the stock with a sell rating, nine have issued a hold rating, nineteen have issued a buy rating and one has issued a strong buy rating to the company. The stock has an average rating of “Buy” and a consensus price target of $52.25.

Monday, 15th August, 2016
The Home Depot, Inc. (NYSE:HD) Calls

**OPTION TRADE: Buy the HD SEPT 16 2016 140.000 call at approximately $1.40. Sell price is left to your own judgment.

The Home Depot, Inc. (NYSE: HD), a home improvement retailer, is scheduled to report its second-quarter results tomorrow, August 16. The company will post its quarterly numbers before the market opens, with the consensus calling for earnings of $1.95 per share, up from $1.71 during the same period last year.

In the preceding quarter, the company posted an earnings beat of 7.5%. Home Depot’s sales have beaten the consensus estimates for eight out of nine quarters. The retailer’s sales grew by 9% during 1Q16 to $22.8 billion. Analysts expected the company to generate sales of $22.4 billion.

Home Depot has benefited from a strong housing market, which is a big reason why earnings are forecast to climb 14.0% versus the same period last year. The stock has been trading steadily higher over the last year, but it appears to have hit a ceiling over the last month, which is most likely a result of the stock’s P/E rising to 24.0. If HD reports solid numbers, the stock is likely to break through recent resistance and resume its upward trend. Looking ahead, analysts forecast earnings will rise 16.9% for the full year, and by 13.5% next year.

The street has a slightly higher whisper number of $1.98, suggesting that analysts expect another solid beat from the company. With interest rates near historic lows, and expected to remain low well into next year, it is believed that there is plenty of upside left in the stock.

The stock is up a modest 3.6% on the year.

Why Home Depot?

Home Depot has been outperforming estimates, mainly gaining strength from its focus on improving customer experience, solid execution and persistent housing market recovery. Analysts remain hopeful about the company’s upcoming results given the robust guidance for fiscal 2016. Also, they expect its focus on developing merchandising tools and increasing investment in e-commerce to boost its top line and enhance market share.

In response to the evolving retail environment, where digital and physical stores go hand in hand, Home Depot remains keen on building its interconnected capabilities, as evident from the 21.5% growth in online sales and double-digit online-traffic growth recorded in the preceding quarter. Moreover, the company is on track to achieve its long-term dividend payout, share repurchase and return on investment targets, which highlight its financial strength.

The Home Depot Inc. (NYSE:HD) was upgraded by Zacks Investment Research from a “sell” rating to a “hold” rating in a research note issued to investors on Tuesday.

One equities research analyst has rated the stock with a sell rating, eight have issued a hold rating and eighteen have issued a buy rating to the company. The Home Depot presently has a consensus rating of “Buy” and an average price target of $145.01.


In recent years, Home Depot has been one of the best-performing stocks in retail, riding a bullish wave in the building materials and home improvement sector.

The leading home improvement retailer has boomed in recent years thanks to a growing housing market, which has led it and rival Lowe's to more than quadruple in the last five years. Home improvement retail offers the benefit of being protected from the growth of Amazon and e-commerce, as building materials are often big and heavy and cannot be delivered through the mail.

Unlike most retailers, Home Depot has also resisted opening new stores in recent years, choosing instead to add new services to current locations, invest in its e-commerce platform, and buy back stock.

Revenue has grown 30% since the recession as same-store sales and e-commerce growth have gone almost directly to the bottom line. Looking ahead, Home Depot is targeting revenue growth from $88 billion last year to $101 billion in 2018, and operating margin improvement from 13% to 14.5%. As a result, operating profits should grow at a compound rate of 9%, which should deliver healthy EPS growth when the company's share buyback program is factored in.

The Home Depot Inc. has a 52 week low of $92.17 and a 52 week high of $139.00. The company has a 50-day moving average price of $134.03 and a 200-day moving average price of $130.44. The stock has a market cap of $170.48 billion and a PE ratio of 24.07.

Monday, 15th August, 2016
TJX Companies Inc (NYSE:TJX) Calls

**OPTION TRADE: Buy the TJX SEPT 16 2016 85.000 call at approximately $1.40. Sell price is left to your own judgment.

TJX Companies Inc (NYSE: TJX), a discount retailer, is set to issue its Q217 quarterly earnings data on Tuesday, August 16th, before the market opens. Analysts expect the company to announce earnings of $0.81 per share and revenue of $7.85 billion for the quarter. The TJX Cos. has set its Q2 guidance at $0.77-0.79 EPS and its FY17 guidance at $3.35-3.42 EPS.

Last quarter, the company delivered a positive earnings surprise of 8.57%. In fact, the company delivered an average positive surprise of 5.38% in the last four quarters.

Navigating successfully through downturns in the economy, The TJX Companies, Inc. has managed to deliver annual same store sales increases every year for the last two decades.

The off-price retailer, which operates across nine countries, surpassed the $30 billion milestone with net sales for FY16 reaching $30.9 billion. Adjusted EPS has grown at a Compound Annual Growth Rate of 14% for the 15-year period ending FY16.

The company has perfected merchandising to an art in the last 40 years, sourcing inventories from a universe of more than 18k vendors in 100 plus countries.

TJX expects to grow its store base by more than 50%, to 5,600 stores long term, in just its current retail chains and current markets alone, from a present base of about 3,661 stores.

An above-plan first quarter motivated the company to raise EPS guidance for the fiscal year ending January 28, 2017, to $3.35 to $3.42, which would represent a 1% to 3% increase over $3.33 in fiscal 2016, but below the consensus estimate of $3.48.

Just this year, TJX shares have gained nearly 17 percent compared with gains closer to 7 percent in both the S&P 500 retail index (.SPXRT) and the broader S&P 500 (.SPX).

The TJX Cos.‘s stock had its “buy” rating reissued by equities researchers at Goldman Sachs Group Inc. in a research note issued to investors last Monday. They presently have a $92.00 price objective on the apparel and home fashions retailer’s stock. Goldman Sachs Group Inc.’s target price points to a potential upside of 14.51% from the company’s current price.

Also, Kim Forrest, senior equity research analyst Fort Pitt Capital Group in Pittsburgh said that "TJX has outperformed and will continue to outperform because it is a good merchandiser. It gets the selection right.”

Shares of The TJX Cos. (NYSE:TJX) have received an average rating of “Buy” from the twenty-three ratings firms that are covering the company. Three investment analysts have rated the stock with a hold recommendation and twenty have given a buy recommendation to the company. The average 12-month price objective among brokers that have updated their coverage on the stock in the last year is $83.63.


TJX stock set record closing highs on Friday ahead of the quarterly report due Tuesday.

But the stock gains could continue, as sales are expected to continue to grow and investors welcome the revenue increase. Same-store sales are expected to have risen 3.3 percent last quarter for TJX.

"The off-price sector has developed a successful strategy to keep consumers coming back," said New York-based Christina Boni, a senior analyst at Moody's Investors Service.

"Stores have the unique ability to change product offerings quickly, which creates a 'scarcity' effect that makes consumers feel more compelled to purchase on the spot, rather than risk someone else beating them to the checkout line," she said.

Shoppers are indeed favoring discounters, and the competition is trying to catch up. Both Macy's (.M.N) and Nordstrom (JWN.N) talked up their off-price lines - Backstage and Nordstrom Rack - in their most recent earnings reports.

"Consumers have started moving to dollar stores and places like off-price chains" at the expense of Macy's and other department stores, said Burt Flickinger, managing director at retail consultancy Strategic Resources Group in New York.

The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, growth in earnings per share, increase in net income and largely solid financial position with reasonable debt levels by most measures – which leads to a positive earnings report which is beneficial to this options trade.

The TJX Cos. has a one year low of $63.53 and a one year high of $83.54. The stock has a market cap of $54.49 billion and a P/E ratio of 24.22. The company’s 50-day moving average price is $79.08 and its 200-day moving average price is $76.18.