“Cut-to-the-Chase” Recommendations
- Week Beginning -
Tuesday, September 05, 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 - Canada Goose Holdings Inc. (NYSE:GOOS) Calls

Thursday, September 07, 2017

OPTION TRADE: Buy the GOOS OCT 20 2017 20.000 CALL at approximately $0.45.

Sell price is left to your own judgment.

Specialty retailer Canada Goose Holdings Inc. (NYSE:GOOS), a company that is known specifically for its $900-and-up parkas with fur-trimmed hoods, shares have been on a tear lately, up 24% in the last three trading sessions and up 48% since the company IPO’d on March 16 at $16 a share.

Canada Goose has been around for over 60 years making dependable, warm outerwear to keep customers cozy in even the harshest winter conditions.

But it wasn’t until 2014 that the company officially opened headquarters in Toronto, and in doing so, it significantly increased its manufacturing capacity.

The company has also been making a push into new markets through its direct-to-consumer online sales channels along with two flagship stores opened in 2016 — one in New York City and the other in Toronto.

In the three years since expanding manufacturing capacity, the company has been able to grow sales at an impressive 38% annual clip; it has been able to nearly double net profit each year over that same three-year period.

At today’s share price, Canada Goose has a trailing price-to-earnings multiple of over 90 times and a price-to-sales ratio of nearly eight times.

These ratios would be considered fairly rich by most investors’ standards, except that management at Canada Goose is projecting the current trend of above-average growth to extend beyond the next few years.

Influencing Factors

Without a doubt, Goose's IPO was a huge win for the company, but once the initial buzz wore off, the retailer needed to prove that it could grow its business in every major way. And with two positive earnings reports under its belt, Canada Goose is on its way to fulfilling this important goal.

In addition to posting smaller-than-expected losses in its last two quarters, the company is opening five new stores by the end of this year, as well as launching a highly-anticipated knitwear collection that could help transform Goose into a more well-rounded retail business.

The company expects that the execution of its growth strategies will continue to drive increases in sales and profitability over the next three years, including annual revenue growth in the mid to high teens and growth in adjusted net income of about 20% per year.

For the current year (fiscal 2018), the company is expecting revenue growth also to be in the mid to high teens and is expecting earnings growth to approach 25% for the year.

Goose saw EPS growth of 43.5% last year, and is looking great for this year too.

In fact, the current growth estimate for this year calls for earnings-per-share growth of 24.2%. Furthermore, the long-term growth rate is currently an impressive 34.1%, suggesting pretty good prospects for the long haul.

And the stock has actually seen estimates rise over the past month for the current fiscal year by about 10.8%.

Canada Goose is also expanding its offerings from coats into knitwear like sweaters and hoodies. These products will likely have a lower gross margin, but still at a 300 to 500 dollar price point, they will help considerable growth. The strength of this knit collection will be essential for upside to the guidance given earlier this year.

One of the big advantages of the company is that due to the brand's relatively small size, it can focus on direct to customer from the get go. With several stores open, and 3 more on the way in Boston, Tokyo and Calgary, the gross margins will continue to expand from fiscal 2017's 52.5%.

The direct business, which includes company-owned stores and the online presence, was 28.5% of sales. At $115.2M, the sales grew 349% from the $33M the year before, showing the large impact of the company store openings.

Goose continues to bring on additional products, some with lower gross margins than the coats which the company is best known for. While this will pressure margins slightly, it will allow it to continue to grow.

Another near-term advantage is the brand is quite notable and marketing is a smaller component than many competitors. Targeted marketing through Facebook (FB) is effective and inexpensive compared to a more broad strategy. Among the millennial generation, word of mouth advertising and celebrity endorsement is plenty of advantage in itself.

Brokerages forecast that Canada Goose will announce earnings of $0.16 per share for the current fiscal quarter. The company is expected to issue its next quarterly earnings report on Monday, January 1st.

According to Zacks, analysts expect that Canada Goose Holdings will report full-year earnings of $0.41 per share for the current year, with EPS estimates ranging from $0.36 to $0.44. For the next year, analysts anticipate that the business will report earnings of $0.52 per share, with EPS estimates ranging from $0.44 to $0.59.

Analysts and Hedge Funds Opinions

Zacks Investment Research upgraded shares of Canada Goose Holdings Inc. from a hold rating to a buy rating in a research note published recently. The brokerage currently has $20.00 target price on the stock.

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

  • Goldman Sachs Group, Inc. (The) restated a “buy” rating and issued a $22.00 target price (up previously from $20.00) on shares of Canada Goose Holdings in a research note on Monday, June 5th.
  • Instinet restated a “neutral” rating and issued a $26.00 target price on shares of Canada Goose Holdings in a research note on Monday, August 14th.
  • Canaccord Genuity restated a “buy” rating on shares of Canada Goose Holdings in a research note on Friday, August 11th.
  • Barclays PLC restated an “overweight” rating and issued a $31.00 target price (up previously from $30.00) on shares of Canada Goose Holdings in a research note on Monday, August 14th.

Several institutional investors have recently made changes to their positions in the stock, to name a few…..

  • Cubist Systematic Strategies LLC purchased a new position in Canada Goose Holdings in the 2nd quarter worth approximately $127,000.
  • Forward Management LLC purchased a new position in Canada Goose Holdings in the 2nd quarter worth approximately $134,000.
  • Nationwide Fund Advisors increased its stake in Canada Goose Holdings by 2.7% in the 2nd quarter. Nationwide Fund Advisors now owns 8,090 shares of the company’s stock worth $160,000 after purchasing an additional 210 shares during the period.
  • Bayesian Capital Management LP purchased a new position in Canada Goose Holdings in the 2nd quarter worth approximately $226,000.

Summary

Canada Goose Holdings has a 1-year low of $15.20 and a 1-year high of $24.32. The firm has a market cap of $1.95 billion and a P/E ratio of 101.39. The company has a 50-day moving average price of $18.63 and a 200-day moving average price of $18.24.

Option Trade – Nutanix, Inc. (NASDAQ:NTNX) Calls

Tuesday, September 05, 2017

** OPTION TRADE: Buy the NTNX OCT 20 2017 22.500 CALL at approximately $1.40. Sell price is left to your own judgment.

Nutanix, Inc. (NASDAQ:NTNX), a United States-based company, which provides an enterprise cloud platform that converges silos of server, virtualization and storage into an integrated solution, reported earnings last Thursday with a slimmer-than-expected fiscal fourth-quarter loss, while posting a revenue beat. After the tech firm forecast upbeat current-quarter revenue numbers, NTNX shares climbed 6% higher out of the gate to $23.25, but pulled back during the day to previous levels.

NTNX forecast calls for quarterly revenue of $240 million to $250 million on a non-GAAP basis, while Wall Street analysts were modeling for first-quarter revenue of about $231 million, according to FactSet.

With analysts on average expecting annual revenue of $1.04 billion for fiscal 2018, the beat on the first-quarter forecast provides more confidence for investors that Nutanix will hit the mark this year.

NTNX stock has been rising atop a trendline connecting a series of higher lows since its early May bottom of $14.38, even with short interest more than doubling in value over this same time frame. Currently, 14.05 million NTNX share are sold short, or nearly 40% of the stock's float. This could speak to underlying strength in NTNX, and prompt some of the weaker bearish hands to capitulate to this positive price action.

Also, Nutanix shares received price-target hikes from Morgan Stanley (to $22) and J.P. Morgan Securities (to $26) after the report.

Influencing Factors

Nutanix Inc. appears to be on track to hit $1 billion in annual revenue next year, one of many positive signs for the company that seem to support its vision of a hybrid-cloud future.

The company is generating positive operating cash flow -- $14 million for the year is a positive step in comparison to FY16.

Note that the stock now has an EV around $3 billion, with a revenue target of over $1 billion in the current FY. Nutanix guided to FQ1 revenues of $245 million at the mid-point versus analyst estimates down at $231 million, so growing revenues isn't a problem.

The company has been benefiting from bright prospects of the hyperconverged integrated systems (HCIS) market. Per market research firm Gartner, HCIS will be the fastest-growing segment of the overall market for integrated systems, reaching almost $5 billion, by 2019.

In fiscal 2016, revenues soared a whopping 84% year over year to $445 million, slightly lower than the nearly 90% surge it posted in fiscal 2015. We anticipate this significant growth momentum will continue and will be well reflected in the to-be-reported quarter results.

Nutanix had 6,170 end customers at the end of third-quarter fiscal 2017, which includes the likes of Jabil Inc. (JBL) and AT&T Inc. It saw many large customer wins, a trend continuing from the quarter before, as 43 customers signed deals for more than $1 million in the quarter, up 39% from a year ago. Large customers also keep coming back to Nutanix to purchase additional nodes and expand their infrastructure.

Nutanix has increased penetration into the IT landscape:-

  • It announced a partnership with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Cloud Platform. While GCP is the smallest of the three public cloud platforms (with Amazon (NASDAQ:AMZN) AWS being first, and Microsoft (NASDAQ:MSFT) Azure second), it does indicate the validity of Nutanix's pitch to enterprises: that they need a "hybrid cloud" approach, with a portion of their workloads housed in the private cloud and another portion in the so-called private cloud.
  • Also note how the two infrastructure options are becoming more and more used in tandem, solidifying Nutanix's place as top dog in the private cloud, similar to AWS's position in the public cloud.
  • In Nutanix's core use case of virtualization, the company reported a startling 75% y/y increase in the use of its own hypervisor, the Acropolis Hypervisor (AHV). Now, Nutanix's native AHV has picked up steam, indicating that along with greenfield growth in replacing legacy servers, the company can also derive growth from stealing virtualization market share from VMware.

Analysts and Hedge Funds Opinions

BTIG Research restated their hold rating on shares of Nutanix Inc. in a report published on Friday morning. They currently have a $22.00 price target on the technology company’s stock.

As well, Alex Kurtz from KeyBanc reiterated a Buy rating on Nutanix Inc, with a price target of $32.

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

  • Goldman Sachs Group, Inc. (The) upgraded Nutanix from a neutral rating to a buy rating and set a $31.00 price objective for the company in a research report on Monday, May 22nd.
  • Credit Suisse Group reiterated an outperform rating and set a $38.00 price objective on shares of Nutanix in a research report on Thursday, May 25th.
  • Robert W. Baird reiterated a buy rating on shares of Nutanix in a research report on Friday, May 26th. Finally, Maxim Group reiterated a buy rating and set a $41.00 price objective on shares of Nutanix in a research report on Friday, May 26th.

One equities research analyst has rated the stock with a sell rating, seven have assigned a hold rating, fifteen have issued a buy rating and two have issued a strong buy rating to the stock. Currently, the analyst consensus on Nutanix Inc is Strong Buy and the average price target is $31.89, representing a 45.0% upside.

Several institutional investors have recently made changes to their positions in the stock, to name a few…..

  • Legal & General Group Plc increased its stake in shares of Nutanix by 3,147.6% in the second quarter. Legal & General Group Plc now owns 8,801 shares of the technology company’s stock worth $175,000 after acquiring an additional 8,530 shares during the last quarter.
  • SG Americas Securities LLC acquired a new position in shares of Nutanix in the second quarter worth $186,000. First American Bank acquired a new position in shares of Nutanix in the second quarter worth $205,000.
  • PNC Financial Services Group Inc. acquired a new position in shares of Nutanix in the second quarter worth $208,000.
  • Finally, Oppenheimer & Co. Inc. acquired a new position in shares of Nutanix in the first quarter worth $211,000.

Summary

Nutanix is a cheap cloud play based on P/S multiples.

Tech stocks with Nutanix's growth potential tend to break out all at once, rewarding investors who stick it out during stagnant phases. Nutanix's stellar Q4, combined with an anemic post-release market reaction, presents an incredible buying opportunity into a company that has quickly become a critical facet of modern IT infrastructure.

Nutanix stock’s market cap is $3.33 billion. Nutanix has a 1-year low of $14.38 and a 1-year high of $46.78. The stock has a 50-day moving average price of $22.13 and a 200-day moving average price of $20.37.