“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, September 25, 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 - Jabil Inc (NYSE:JBL) Calls

Wednesday, September 27, 2017

** OPTION TRADE: Buy the JBL OCT 20 2017 30.000 CALL at approximately $0.25. Sell price is left to your own judgment.

The electronic products solutions company, Jabil Inc (NYSE:JBL), providing engineering, manufacturing and intelligent supply chain solutions to companies in a variety of industries - automotive, packaging, healthcare, retail and more, will announce fiscal fourth-quarter 2017 results today, September 27, after the market closes. Current estimate is $0.62 for the 4th quarter and $2.09 for the full year.

For the fourth quarter, Jabil expects total revenue to increase 11% (at mid-point) year over year and be in the range of $4.7-$5.1 billion. Core operating income is estimated in the range of $165-$215 million.

Diversified Manufacturing Services revenues are forecast to grow 26% year over year.

Electronics Manufacturing Services revenues are anticipated to witness moderate improvement of 2% on a year-over-year basis.

The company has beaten the Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 9.51%.

Last quarter, the company reported better-than-expected results wherein earnings of 31 cents per share beat the Consensus Estimate of 29 cents and grew 82.4% year over year.

Revenues of $4.49 billion outpaced the Consensus Estimate of $4.41 billion and were also higher than the prior-year quarter's figure of $4.31 billion.

Notably, in the past one year, Jabil shares have gained 35.2%, substantially outperforming the industry's rally of 27.2%.

Influencing Factors

Jabil continues to gain from the fast growing Electronic Manufacturing Services (EMS) sector such as industrial, renewable energy, clean tech and medical. The company's Diversified Manufacturing Services (DMS) segment is likely to be driven by opportunities in the healthcare and packaging businesses. The company's Green Point business is also expected to do well.

The realignment program is also aiding the company to significantly cut back its expenses while maintaining its production capacities. Despite a financial impact of $195 million over the next two years, this initiative is likely to bode well for the company.

Apple Computer business is expected to be significant, possibly driving an upside beat to the estimates. Estimates on Yahoo Finance have not changed at all in the last 90 days.

Forward guidance will also be important given that the most recent iPhone has recently been introduced to mixed reviews.

A stock is considered to be oversold if the RSI reading falls below 30. In trading on Tuesday, shares of Jabil Inc. entered into oversold territory, hitting an RSI reading of 29.6, after changing hands as low as $27.76 per share. By comparison, the current RSI reading of the S&P 500 ETF (SPY) is 63.4. This is an indication that the recent heavy selling is in the process of exhausting itself.

Analysts and Hedge Funds Opinions

ValuEngine upgraded shares of Jabil Circuit from a buy rating to a strong-buy rating in a research note issued to investors on Thursday, September 7th.

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

  • Zacks Investment Research raised shares of Jabil Circuit from a “hold” rating to a “buy” rating and set a $33.00 price objective for the company in a research report on Tuesday, June 20th.
  • Bank of America Corporation reissued a “buy” rating and issued a $34.00 target price (up previously from $33.00) on shares of Jabil Circuit in a research note on Monday, June 19th.
  • UBS AG reissued a “buy” rating and issued a $35.00 target price (up previously from $30.00) on shares of Jabil Circuit in a research note on Friday, June 16th.
  • Finally, Needham & Company LLC restated a buy rating and set a $37.00 price objective on shares of Jabil Circuit in a report on Friday, September 1st.

Nine analysts have rated the stock with a hold rating, six have assigned a buy rating and one has issued a strong buy rating to the company’s stock. The company presently has an average rating of “Buy” and an average target price of $32.50.

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

  • Nicholas Investment Partners LP boosted its stake in shares of Jabil Circuit by 47.2% in the 2nd quarter. The firm owned 144,173 shares of the technology company’s stock after buying an additional 46,210 shares during the quarter. Nicholas Investment Partners LP owned 0.08% of Jabil Circuit worth $4,208,000 as of its most recent SEC filing.
  • Also, Bank of New York Mellon Corp grew its position in Jabil Circuit by 3.6% during the first quarter. Bank of New York Mellon Corp now owns 2,499,748 shares of the technology company’s stock valued at $72,292,000 after purchasing an additional 87,185 shares in the last quarter.

Summary

If actual revenue exceeds the upper end of guidance, then the EPS could be as much as $0.75 to $0.80, which could cause a sharp rally in the shares.

Jabil will probably show increasing earnings up to FY 2019 when they have said they expect to earn at least $3.00 on core earnings per share. Expect those numbers as minimum expectations going forward. Earnings should come in ahead of plan and forward guidance will be generally positive.

Jabil Circuit has a 12-month low of $20.32 and a 12-month high of $31.70. The stock has a 50 day moving average price of $30.47 and a 200 day moving average price of $29.56. The firm has a market cap of $4.99 billion, a PE ratio of 42.80 and a beta of 0.55.


Option Trade - Micron Technology, Inc. (NASDAQ:MU) Calls

Monday, September 25, 2017

** OPTION TRADE: Buy the MU OCT 20 2017 38.000 CALL at approximately $1.10. Sell price is left to your own judgment.

Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, is scheduled report fiscal Q4 results after the market close on Tuesday. Micron has benefited in recent quarters from strong demand and pricing trends for its DRAM and Nand memory chips.

Analysts expect Micron to earn an adjusted $1.83 a share, the Earnings Whisper number is $1.85 per share, reversing a year-earlier loss of 5 cents a share, while sales are predicted to surge 85% to $5.95 billion. Shares, which have jumped more than 60% so far this year, are near record highs and recently entered profit-taking sell territory after breaking out in May.

Investor sentiment going into the company's earnings release has 84% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 3,760.00% with revenue increasing by 83.09%.

Short interest has decreased by 6.5% since the company's last earnings release while the stock has drifted higher by 12.3% from its open following the earnings release to be 30.2% above its 200 day moving average of $27.70.

Overall earnings estimates have been revised higher since the company's last earnings release.

Influencing Factors

Micron offers both DRAM and NAND products. While DRAM chips are key components in PCs, NAND flash chips are crucial for portable electronic devices. So far, the fiscal 2017 has been marvellous for the company.

In the last reported quarter, Micron's top and bottom lines surpassed the respective Consensus Estimate, as well as marked tremendous year-over-year growth, primarily due to pricing improvement in DRAM and NAND sales volume.

It is believed that the improving prices for DRAM and NAND chips make investors confident about Micron's growth. Per various sources, prices for these specific chips have improved chiefly due to a better product-mix optimization and higher-than-expected demand for PCs, servers and mobiles.

Any elevation in prices will have a favorable influence on the company's top line, the benefit of which will likely trickle down to the bottom line. The benefit from improved pricing was well reflected in the company's last quarterly results as well. It is anticipated that these benefits will reflect in the to-be-reported quarter as well.

As well, the company's strategy of enhancing its operating capabilities through acquisitions is likely to boost its top-line performance.

Also, it is worth mentioning that the buyout of Inotera in December 2016 will have some operational benefits, leading to efficient management of investment and cadence, followed by alignment with global manufacturing operations.

Over the last three quarters, Micron’s revenues rose 24%, 17%, and 20% sequentially as DRAM ASP rose 5%, 21%, and 14% sequentially. The revenues rose faster than DRAM ASP due to an increase in sales volume and a richer product mix.

Micron’s DRAM sales bit growth slowed in the first two quarters of fiscal 2017 from 18% to 1% due to softness in mobile DRAM. However, sales bit growth picked up in fiscal 3Q17 to a 5% due to an increasing demand for server DRAM. This trend could continue in fiscal 4Q17 with DRAM sales bit expected to grow in the high-single digits.

NAND sales bit saw double-digit increases in the last three quarters—26%, 18%, and 17%—as 3D NAND constituted a larger portion of Micron’s overall NAND output compared to its competitors.

Micron expects its fiscal 4Q17 revenues to increase 6% sequentially to $6.0 billion, which is higher than the consensus estimate of ~$5.6 billion. Analysts find the company’s guidance to be conservative and expect its revenues to surpass $6 billion in fiscal 4Q17. This would send the company’s fiscal 2017 revenues up 61% YoY (year-over-year) to more than $20 billion. Such high growth has put Micron in the list of top five semiconductor stocks by revenue.

Analysts and Hedge Funds Opinions

KeyBank came out recently to praise Micron's potential for continued growth. According to the KeyBank analyst , DRAM memory pricing dynamics are "robust" and prices are expected to rise through the end of the year - directly benefitting Micron. The brokerage firm reiterated its $42 price target on MU stock and even held its "sector weight" stance due to increased DRAM capacity from Samsung Electronics and SK Hynix - a concern that Evercore ISI recently said was overblown.

Also, Goldman Sachs analyst Mark Delaney upgraded Micron Technology from “neutral” to “buy” and raised his price target on the stock from $33.00 to $40.00, representing an upside of 15% from its current trading price of $34.60.

Delaney noted that Goldman Sachs underestimated the memory upcycle when it downgraded Micron in May 2017. At that time, DRAM (dynamic random access memory) investment rose 40% YoY (year-over-year). However, DRAM makers were more disciplined with their capital spending than expected.

With such strong memory pricing, Delaney expects Micron to report better-than-expected earnings in fiscal 2018. He raised his fiscal 2018 EPS (earnings per share) estimate for Micron from $5.15 to $7.60, which is significantly above the consensus estimate of $6.24.

J.P. Morgan analyst Harlan Sur is bullish on Micron. On August 29, 2017, he stated that memory prices would return to its normal course of sequential declines in 2018. However, this would not impact Micron’s margins, as the declining prices would be offset by cost reductions achieved through technology transition.

On September 12, Sur stated that increased DRAM content in Apple’s (AAPL) iPhone would benefit Micron in 2017 and 2018.

Many analysts have revised their fiscal 4Q17 earnings estimate for Micron.

Summary

The industry is better. We've had massive consolidation in DRAM and more importantly, the company is better.” Chris Danely – Citi Analyst

As well, analyst C.J. Muse of Evercore sees the current DRAM cycle as sustainable due to improving demand paired with acceleration in storage and processing, constricted supplies due to rising complexity, and bit growth reduction due to shrinks.

Of course, the company’s executives have been saying this for quite some time. In early September, the CFO repeated his view on the market dynamics:

“Well, I think first of all, you have to look at the demand market and demand environments and certainly the collection and use of data and the rate at which the collection and use of data is expanding and as you think about applications like autonomous driving and artificial intelligence, so every single thing we contemplate that's driving the economy, the future is reliance on data.”

Expect MU to post an earnings beat. It is believed that MU will report an EPS that is at least $0.10 higher than current expectations as DRAM prices continue their steady uptrend.

Micron Technology has a market capitalization of $40.04 billion, a price-to-earnings ratio of 15.84 and a beta of 1.75. The company has a 50-day moving average price of $31.03 and a 200 day moving average price of $29.54. Micron Technology has a one year low of $16.17 and a one year high of $36.22.





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