“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, August 21, 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 - salesforce.com, inc. (NYSE:CRM) Calls

Tuesday, August 22, 2017

** OPTION TRADE: Buy the CRM SEPT 15 2017 95.000 CALL at approximately $1.30. Sell price is left to your own judgment.

The San Francisco-based cloud software provider, salesforce.com, inc. (NYSE:CRM), will report fiscal 2Q18 results after the closing bell on today. Should Salesforce.com beat top-line expectations of $2.51 billion, it will have done so for the tenth straight quarter since January 2015. EPS is expected to come in at $0.31 which, if achieved, would represent a healthy YOY improvement of 29%.

Once again, robust double-digit growth across Salesforce.com's cloud verticals and geographic segments is expected. The company appears to be scaling very well and maintaining a good cadence of strong yet consistent top-line performance. In terms of comp headwinds, the lapping of Demandware's July 2016 acquisition should make fiscal 2Q18 look a bit less impressive compared to the past few quarters. But the lapping effect should have been fully accounted for in sales growth estimates of 23%, the lowest expected increase since 2015.

Salesforce.com Inc. went on a buying spree last year, and the resulting products should be on full display with earnings being presented.

Salesforce stock has grown by 5% in the three months since its last earnings report, beating the S&P 500 index’s SPX, gain of 2% in that time. Shares have gained 34% so far in 2017, easily outdistancing an 8.5% increase for the S&P 500.

Influencing Factors

Analyst Brian White of Drexel Hamilton is predicting that the tech giant will meet his projection for EPS at $0.32, while slightly surpassing his revenue estimate of $2.513 billion. Looking ahead; the analyst projects 3Q:FY18 revenue of $2.625 billion and EPS of $0.35.

Furthermore, there are a number of other driving trends, which will continue to propel CRM says White, stating, “Trends across our software coverage universe have been positive for the most part this earnings season and we expect strong trends at Salesforce to continue. Moreover, salesforce continues to expand its portfolio and enrich the capabilities of the platform. For example, we remain optimistic around the company’s push to add more intelligence to its clouds with entry into the AI market with the introduction of Salesforce Einstein last September.”

The analyst concludes, “Salesforce’s stock has rebounded by 33% in 2017 on strong performance and we believe the momentum can continue. In our view, the move into the cloud remains in the early stages and we believe Salesforce represents the best vehicle for investors to play the cloud trend as the company moves toward its $20 billion revenue milestone.”

As such, White reiterates a Buy rating on CRM with a target price of $111.00 representing a near 22% rise over current trading levels.

With earnings, revenue and bookings expected to grow at a healthy pace, this should be a strong quarter for Salesforce, according to Wall Street analysts. "We believe the company will report upside to key 2Q18 estimates, and more importantly, the stage is set for strong 2H18 stock performance owing to seasonal strength in billings, event-driven catalysts (Dreamforce conference) as well as growing monetization of a variety of newer cloud products," Suntrust Robinson Humphrey analyst Terry Tillman wrote in a note on Friday.

New customers are continuing to sign on to the new, easy-to-use Lightning edition platform that came out this summer with updated, more customizable features. More than 100,000 customers have adopted Lightning, according to Salesforce. Investors were concerned not enough existing customer would use Lightning because they would need to implement the new user interface, but William Blair analyst Bhavan Suri said he thinks they are signing on at a healthy pace as well. The Lightning platform's customization options should drive up average revenue per user (ARPU), he noted.

Analysts and Hedge Funds Opinions

Out of 45 analysts who cover the stock, 39 rate it the equivalent of buy and only one has the equivalent of a sell rating. The average price target is $102.90, reflecting 12.1% upside from Monday’s closing price of $91.76.

Many of those analysts predict that Salesforce will beat earnings projections and raise full-year guidance in Tuesday’s report. Salesforce did exactly that last quarter, boosting its fiscal-year sales forecast from a range of $10.15 billion to $10.2 billion to a range of $10.25 billion to $10.3 billion as it seeks to beat Oracle in a race to $10 billion in cloud revenue.

“We expect management to raise its FY18 revenue forecast above current consensus, while calling for slightly better profitability as one-time expenses wear off,” Mizuho Securities analysts, who have a buy rating and $100 price target on the stock, wrote last week.

Macquarie analysts also checked in with Salesforce partners, and said they “noted that demand across verticals was robust and one noted that the retail vertical was seeing its largest quarter in the history of the company as Demandware drives broader CRM adoption.”

Macquarie’s software analysts named Salesforce their “top pick into off-cycle EPS season,” and have an outperform rating and $107 price target on the stock.

Last year, Salesforce’s third-quarter forecast disappointed and hurt the stock, but analysts seem to have adjusted their expectations due to the apparent seasonality, pushing revenue to the fourth quarter when Dreamforce comes to town.

“Seasonality continues to become more F4Q weighted due to fiscal-year signings seasonality, the increase of annual billings within the mix and the increase of coterminous contracts in the mix,” wrote RBC Capital Markets analysts, who have an outperform rating and $102 price target on the stock.

Salesforce was upgraded by Zacks Investment Research from a “hold” rating to a “buy” rating in a research report issued to clients and investors on Monday. The brokerage presently has a $102.00 target price on the CRM provider’s stock. Zacks Investment Research‘s price target points to a potential upside of 12.38% from the company’s previous close.

According to Zacks, “The leading CRM platform provider, Salesforce has outperformed the industry on a year-to-date basis. We consider the rapid adoption of the Salesforce1 Customer Platform to be a positive. Overall, the company’s diverse cloud offerings and considerable spending on digital marketing remain catalysts. Additionally, strategic acquisitions and the resultant synergies are anticipated to prove conducive to growth over the long run. In view of increasing customer adoption and satisfactory performances, market research firm, Gartner, acknowledged Salesforce as the leading social CRM solution provider. We believe that the rapid adoption of Salesforce’s platforms indicates solid growth opportunities in the ever-growing cloud computing segment.”

Summary

If Salesforce.com can manage the competition and beat estimates, CRM stock should bust through resistance and even challenge $100.

Salesforce.com has a one year low of $66.43 and a one year high of $92.49. The stock has a market cap of $64.63 billion, a P/E ratio of 480.16 and a beta of 1.29. The firm’s 50 day moving average is $89.63 and its 200-day moving average is $86.11.


Option Trade - Medtronic plc. Ordinary Shares (NYSE:MDT) Calls

Monday, August 21, 2017

** OPTION TRADE: Buy the MDT SEPT 15 2017 85.000 CALL at approximately $0.80. Sell price is left to your own judgment.

Ireland-based medical device major Medtronic PLC (NYSE:MDT) will likely beat expectations when it reports first-quarter and fiscal 2018 results before the market opens Tuesday, August 22. The consensus calls for earnings of $1.08 per share, up from $1.03 during the same period last year on revenue of $7.45 billion.

Medtronic is the biggest pure-play medical technology company in the United States. It has a market capitalization of around $103 billion. The company exceeded its revenue as well as earnings estimates in 4Q17. Cardiac and Vascular Group (or CVG), Minimally Invasive Therapies Group (or MITG), Restorative Therapies Group (or RTG), and the Diabetes Group are the company’s four business segments.

Medtronic has done a decent job growing earnings over the last few years, with 5.8% average earnings growth over the last five years, and analysts forecast per annum growth of 5.0% for the next five years. Last quarter, the company posted earnings of $1.33 per share, surpassing the Consensus Estimate by 2 cents.

In fiscal 4Q17, Medtronic’s revenue came in at $7.9 billion, representing YoY (year-over-year) growth of ~5%. Revenues saw a negative impact of $50 million from currency headwinds. All four business segments of the company, namely CVG (Cardiac and Vascular Group), MITG (Minimally Invasive Therapies Group), RTG (Restorative Therapies Group), and Diabetes, witnessed mid-single-digit sales increases.

The street has a whisper number of $1.09 for the quarter, which is a penny above the consensus, which illustrates that the general market remains upbeat on the company's underlying business.

The stock has risen 18.3% on the year.

Influencing Factors

Another quarter of solid growth on successful execution of its three growth strategies, therapy innovation, globalization and economic value is expected for Medtronic. Combined with the demographics of an aging population, these positives have started to open up opportunities for Medtronic, which should get reflected in the first quarter as well.

Within therapy innovation, there have been multiple developments. Under the Cardiac and vascular group, new therapies are helping the company gain traction in the rapidly growing MedTech markets such as left ventricular assist device (LVAD), transcatheter aortic valve replacement (TAVR), drug-coated balloons, atrial fibrillation ablation and insertable diagnostics.

Within cardiac rhythm implantables, the company is fast capturing market share on its differentiated 3T MRI technology. Within TAVR, it is expected that Medtronic will register strong growth in the quarter on the back of the FDA approval for the extended use of its self-expanding CoreValve Evolut TAVR platform in July 2017. With this approval, patients with symptomatic severe aortic stenosis and at an intermediate risk for open-heart surgery will be eligible for treatment using the technology.

In coronary, Medtronic has started selling Resolute Onyx DES in the high-growth Japan market from July 10, as per a Cardiovascular Business report released on July 7. These developments buoy optimism and strengthen the belief for strong quarterly performance by the company in first-quarter fiscal 2018.

Over the recent past, the company has been witnessing soft sequential performance in its diabetes business owing to the anticipated full launch of the MiniMed 670G hybrid closed loop system. In June 2017, Medtronic announced the U.S. launch of the MiniMed 670G system for type 1 diabetes. This should reflect in the company's top line from the first-quarter fiscal 2018.

In June 2017, Medtronic announced a new outcomes-based agreement with Aetna for type 1 and type 2 diabetes patients currently on multiple daily insulin injections. This development may also start contributing to the company's diabetes business in near term.

Also, within the brain therapy space, under the Restorative Therapies Group business, the company saw encouraging developments. Medtronic announced the receipt of Health Canada licence for SureTune 3 software for deep brain stimulation (DBS) in June 2017. The latest innovations in the SureTune technology allow for more precise, efficient treatment while also improving patient management with centralized data storage for easy reference. The company received CE Mark for its SureTune software for deep brain stimulation in the same month.

Analysts and Hedge Funds Opinions

BidaskClub raised Medtronic PLC from a “buy” rating to a “strong-buy” rating in a report on Saturday, June 17th.

Also, Medtronic has been assigned a $96.00 price target by stock analysts at Deutsche Bank AG in a report released on Monday, July 31st. The firm presently has a “buy” rating on the medical technology company’s stock. Deutsche Bank AG’s target price would suggest a potential upside of 15.09% from the stock’s current price.

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

  • Cowen and Company reaffirmed an “outperform” rating and issued a $95.00 price objective (up previously from $86.00) on shares of Medtronic PLC in a research note on Sunday, May 28th.
  • CIBC reaffirmed a “buy” rating on shares of Medtronic PLC in a research note on Friday, May 26th.
  • Jefferies Group LLC reaffirmed a “buy” rating and issued a $103.00 price objective on shares of Medtronic PLC in a research note on Thursday, August 3rd.
  • Finally, Goldman Sachs Group, Inc. (The) started coverage on Medtronic PLC in a research note on Tuesday, May 16th. They issued a “neutral” rating and an $87.00 price objective on the stock.

Two equities research analysts have rated the stock with a sell rating, ten have given a hold rating and fifteen have assigned a buy rating to the company. The company currently has an average rating of “Hold” and an average price target of $89.84.

Several institutional investors have recently made changes to their positions in the stock…..

  • Live Your Vision LLC held its position in Medtronic during the first quarter. The fund owned 4,035 shares of the medical technology company’s stock at the end of the first quarter. Live Your Vision LLC’s holdings in Medtronic PLC were worth $325,000 at the end of the most recent reporting period.
  • Wells Fargo & Company MN increased its position in Medtronic PLC by 18.9% in the first quarter. Wells Fargo & Company MN now owns 11,932,572 shares of the medical technology company’s stock worth $961,288,000 after buying an additional 1,895,386 shares in the last quarter.
  • Swiss National Bank increased its position in Medtronic PLC by 24.8% in the first quarter. Swiss National Bank now owns 5,459,663 shares of the medical technology company’s stock worth $439,830,000 after buying an additional 1,085,400 shares in the last quarter.
  • UBS Asset Management Americas Inc. increased its position in Medtronic PLC by 10.5% in the first quarter. UBS Asset Management Americas Inc. now owns 3,826,682 shares of the medical technology company’s stock worth $308,278,000 after buying an additional 364,384 shares in the last quarter.

In other Medtronic PLC news, Director Richard H. Anderson acquired 5,600 shares of the business’s stock in a transaction on Wednesday, June 21st. The shares were purchased at an average price of $88.90 per share, with a total value of $497,840.00. Following the completion of the purchase, the director now owns 71,910 shares in the company, valued at approximately $6,392,799.

Summary

The company expects strong growth due to its product portfolio, recent launches, strategic initiatives, partnerships, and collaborations to drive its revenues in the quarter.

Medtronic has a 50-day moving average of $85.48 and a 200 day moving average of $83.22. Medtronic PLC has a one year low of $69.35 and a one year high of $89.72. The firm has a market capitalization of $113.36 billion, a P/E ratio of 28.86 and a beta of 1.02.



EXTRA OPTIONS TRADES

Add the following trades that appeared in the article “Earnings Predictions for the Week Beginning August 21, 2017.”

These trades will be included in the results.

Reporting Wednesday, August 23

HP Inc. (HPQ) - Last quarter, the company posted a positive earnings surprise of 2.6%. Several reasons to like HPQ:-

The split from Hewlett Packard Enterprise Company HPE in November 2015 enabled HP to make customized approach for its businesses which was not possible when it operated as a single entity.

  • Working on product innovation and differentiation, as well as enhancing the capabilities of the printing business to stabilize its top line.
  • Rolling out various models under its PC product lines of EliteBook, Spectre and Pavilion Wave.
  • Focusing on its pricing actions and marketing and sales activities which have helped in stimulating demand for the company's PC products in the market.
  • Has gained its top position once again by replacing Lenovo, per Gartner's recently released data on PC shipment for second-quarter 2017 .
  • Last-quarter growth in the company's PC shipments was its fifth quarter of consecutive year-over-year improvement, after several quarters of decline.

HP's efforts to turn around the business have been commendable and seem to be in the right direction as indicated by the results of the last few quarters.

Option trade to consider: Buy the HPQ Sept 15 2017 19.000 CALL at approximately $0.40.

Reporting Thursday, August 24

Abercrombie & Fitch Co. (NYSE:ANF) --  is expected to report before the market opens. Based on analysts' forecasts, the consensus EPS forecast for the quarter is $-0.34. The reported EPS for the same quarter last year was $-0.25.

Management expects second-quarter comps to remain challenging and gross margin to be pressurized. Moreover, currency headwinds are expected to hurt performance throughout fiscal 2017. While strength at the company’s Hollister brand and direct-to-consumer operations provide some respite, the aforementioned obstacles cannot be ignored.

Further, investors seem jittery about Abercrombie’s upcoming performance, as reflected by a nearly 7% drop in its shares over the last five trading sessions. In fact, the company has slumped 21.9% so far this year, while it fared better than the industry’s 28.2% decline.

Option trade to consider: Buy the ANF SEPT 15 2017 9.000 PUT at approximately $0.50.





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