“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, October 30, 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 - Ctrip.Com International Ltd (ADR) (NASDAQ:CTRP) CALL

Tuesday, October 31, 2017

** OPTION TRADE: Buy the CTRP NOV 17 2017 50.000 CALL at approximately $0.60. Sell price is left to your own judgment.

Ctrip.Com International Ltd (ADR) (NASDAQ:CTRP), a travel service provider for accommodation reservation, transportation ticketing, packaged tours and corporate travel management in China, will announce its third quarter 2017 results on Wednesday, November 1, 2017, U.S. Time, after the market closes.

Wall Street expects the Chinese travel website to report EPS of 23 cents, up from a penny a year ago. Revenue is seen jumping 38% to $1.153 billion. The company has been enjoying a year’s long travel boom in China as the middle class grows.

Ctrip.Com is often referred to as "The Priceline of China." In fact, Priceline is so confident in Ctrip's position in the Chinese market; it has chosen to partner with Ctrip and owns 8.9% of shares outstanding.

After breaking out to a rather large lead in China's online travel agency market, Ctrip faced some staunch competition coming out of the Great Recession. Qunar and eLong entered the market and started pricing hotels and airline flights for lower -- beginning a protracted pricing war. Peace came, however, two years ago, when Qunar and Ctrip effectively merged.

Since then, Ctrip has been consolidating its many moving parts, and gross margin has improved dramatically -- expanding 978 basis points from the end of 2014 to the first half of 2017, to 81.19%.  At the same time, Ctrip's two largest divisions -- transportation and accommodations -- have continued their rapid expansion.

With each additional Chinese user flocking to Ctrip to book travel plans, vendors have even more incentive to use Ctrip, giving the company even more leverage. Those are dynamics that could turn Ctrip into a Priceline-like stock.

Influencing Factors

There is not much wrong with the fundamentals for Ctrip. Tourism is still growing rapidly in Asia in general, and China in particular……

The world's top 10 fastest growing tourism cities are all in Asia, according to new data from the World Travel and Tourism Council. The city of Chongqing in southwest China tops the list on the latest study, with 14 percent growth per year. The other cities on the top 10 growth list are Guangzhou, Shanghai, Beijing, Chengdu, Manila, Delhi, Shenzhen, Kuala Lumpur and Jakarta.

Last quarter was very solid. Revenue grew by 43.9%, at the high end of guidance, while EPS came in 10% above expectations at $0.22. What was pretty noteworthy was the jump in gross margins, from the earnings PR -- Gross margin was 82% for the second quarter of 2017, improving from 72% for the same quarter of 2016 and 80% for the previous quarter, due to further efficiency gain

The improvement in non-GAAP operating margin was even more dramatic -- Non-GAAP operating margin for the second quarter of 2017 was 18%, improving significantly from 4% for the same quarter a year of 2016, primarily driven by improvements in operating efficiency across the board and synergies from the invested companies.

This suggests that after the intense competition and consolidation phase, things are a bit more settled in the Chinese travel market and the big companies (Ctrip is the biggest) can take the foot off the gas a little with respect to promotions, marketing, and increasing the platform, stuff that until now had been depressing margins.

For instance, product development cost just increased by 18%, less than half the growth of revenues and general and administrative expenses increased by just 19%, pretty good leverage.

Analysts and Hedge Funds Opinions

Barclays PLC initiated coverage on Ctrip.com International in a research report on Monday, October 9th. They issued an “overweight” rating and a $62.00 target price on the stock.

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

  • Cowen and Company restated a “buy” rating and set a $53.00 price objective (down previously from $60.00) on shares of Ctrip.com International in a report on Monday, August 28th.
  • Bank of America Corporation restated a “buy” rating and set a $58.00 price objective on shares of Ctrip.com International in a report on Sunday, September 3rd.
  • Finally, Oppenheimer Holdings, Inc. reiterated an “outperform” rating and issued a $62.00 price target (down previously from $65.00) on shares of Ctrip.com International in a research note on Friday, August 25th.

One analyst has rated the stock with a sell rating, four have given a hold rating and thirteen have assigned a buy rating to the company. The stock has an average rating of “Buy” and a consensus price target of $58.25.

Institutional investors that have recently made a change to their positions in the stock….

  • Parametrica Management Ltd lifted its position in Ctrip.com International by 1,281.1% during the 3rd quarter. Parametrica Management Ltd now owns 124,506 shares of the company’s stock worth $6,566,000 after acquiring an additional 115,491 shares during the last quarter.
  • Wasatch Advisors Inc. grew its stake in shares of Ctrip.com International by 34.6% during the second quarter. Wasatch Advisors Inc. now owns 932,776 shares of the company’s stock worth $50,239,000 after purchasing an additional 239,632 shares during the period.
  • Sumitomo Mitsui Asset Management Company LTD raised its position in shares of Ctrip.com International by 19.6% during the third quarter. Sumitomo Mitsui Asset Management Company LTD now owns 151,496 shares of the company’s stock valued at $7,989,000 after buying an additional 24,854 shares during the last quarter.
  • Penserra Capital Management LLC raised its position in shares of Ctrip.com International by 72.9% during the third quarter. Penserra Capital Management LLC now owns 269,338 shares of the company’s stock valued at $14,204,000 after buying an additional 113,572 shares during the last quarter.
  • Korea Investment CORP increased its stake in shares of Ctrip.com International by 10.9% in the 3rd quarter. The fund owned 350,400 shares of the company’s stock after purchasing an additional 34,300 shares during the period. Korea Investment CORP owned 0.07% of Ctrip.com International worth $18,480,000 as of its most recent SEC filing.

Summary

Ctrip's no rookie. The Chinese speedster is working on its fourth consecutive year of revenue growth north of 30%. There are certainly risks in betting on China's travel industry, but it's been a good bet given the country's expanding middle class and booming economy.

Ctrip took big hits last week, but the upside is substantial for the stock. As long as the fundamentals continue to hold up the double-digit percentage declines last week have all the makings of a buying opportunity.

Growth in revenues is still very brisk and margins are expanding, which should lend support for the shares.

Ctrip.com International has a one year low of $39.71 and a one year high of $60.65. The firm has a market capitalization of $24.79 billion, a P/E ratio of 148.21 and a beta of 1.69. The firm’s 50 day moving average is $52.56 and its 200 day moving average is $53.67.


Tuesday, October 31, 2017

The following 3 trades are taken from……

 "Earnings Predictions for the Week Beginning October 30, 2017"

NOTE: Check the price before executing!

Thursday, November 02

Trade 1

Apple Inc. (NASDAQ:AAPL) Call

** OPTION TRADE: Buy the AAPL DEC 15 2017 175.000 CALL at approximately $1.70.

Apple Inc. (NASDAQ:AAPL) – will report Q3 results after the market closes. The consensus earnings estimate is $1.86 per share on revenue of $51.17 billion, up from $1.66 per share on $46.56 billion in the year-earlier period -- but the Earnings Whisper number is $1.93 per share. The company has handily beaten estimates in each of the last three quarters.

Consensus estimates are for year-over-year earnings growth of 11.38% with revenue increasing by 9.22%.

Short interest has decreased by 12.5% since the company's last earnings release while the stock has drifted higher by 2.4% from its open following the earnings release to be 11.3% above its 200 day moving average of $146.52.

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

The stock is now up +40.1% in the year-to-date period.

Apple will begin selling its highly anticipated iPhone X smartphone Friday after a week of pre-orders.

Trade 2

Activision Blizzard, Inc. (NASDAQ:ATVI)

** OPTION TRADE: Buy the ATVI NOV 17 2017 65.000 CALL at approximately $1.80.

Activision Blizzard, Inc. (NASDAQ:ATVI) - will follow with third-quarter results after the market closes. Activision is seen earning 49 cents a share, down 6%, on sales of $1.73 billion, up 6%.

Activision is riding high on the shift to digital game downloads and micro-transactions; and is well positioned to benefit from the explosion in eSports.

The company has passed management's financial targets in each of the past five quarters. And considering the run-up in the stock so far this year, Wall Street is betting Activision will add to that impressive streak.

Friday, November 03

Trade 3

CBRE Group Inc. (NYSE:CBG)

** OPTION TRADE: Buy the CBRE DEC 15 2017 40.000 CALL at approximately $0.85.

CBRE Group Inc. (NYSE:CBG) - Commercial real estate services company will report before the market opens and a strong quarter is expected.

While revenue growth fell last quarter from 5% to 4%, earnings-per-share grew 25%, up from 19% in the prior report.

Consensus analyst estimates call for earnings-per-share growth of 8% for the quarter, and 12% growth for the full year.

CBRE has a 92 Composite Rating and holds the No. 2 rank among its peers in the Real Estate-Development/Operations industry group.

Stifel Financial Corp boosted its position in shares of CBRE by 7.4% during the 2nd quarter. The fund owned 38,846 shares of the financial services provider’s stock after purchasing an additional 2,692 shares during the quarter. Stifel Financial Corp’s holdings in CBRE Group were worth $1,415,000 at the end of the most recent reporting period.


Option Trade - Kraft Heinz Co. (NASDAQ:KHC) Puts

Monday, October 30, 2017

** OPTION TRADE: Buy the KHC NOV 17 2017 75.000 PUT at approximately $0.55.

Sell price is left to your own judgment.

Kraft Heinz Co. (NASDAQ:KHC), a food and beverage company, is expected to announce its next earnings results after the market closes on Wednesday, November 1st.

Kraft Heinz doesn't give quarterly guidance, but analysts' average estimate is that the food giant will report $0.82 in earnings per share, one penny less than last year's third quarter. For the full year, analysts predict the company will grow earnings 9% over Kraft Heinz's 2016 adjusted earnings per share of $3.33. While management doesn't give specific numbers to investors, they have said they expect "solid" earnings growth for 2017. However, increased investments in marketing, distribution, and new products will likely hold down margins for 2017 versus 2016.

Analysts predict that The Kraft Heinz Company (NASDAQ:KHC) will report $6.33 billion in sales for the current fiscal quarter. Four analysts have issued estimates for The Kraft Heinz’s earnings, with the lowest sales estimate coming in at $6.27 billion and the highest estimate coming in at $6.37 billion. The Kraft Heinz reported sales of $6.27 billion during the same quarter last year, which indicates a positive year over year growth rate of 1%.

On average, analysts expect that The Kraft Heinz will report full year sales of $26.33 billion for the current fiscal year, with estimates ranging from $26.25 billion to $26.49 billion. For the next year, analysts anticipate that the business will report sales of $27.00 billion per share, with estimates ranging from $26.63 billion to $27.70 billion.

The stock is down 12% year to date following soft sales performance to start the year. The S&P 500 (SPX-INDEX) has risen 14.2%. Consumers are buying more fresh foods and less packaged foods, which has hurt demand for Kraft Heinz's products.

Influencing Factors

Sales growth is what investors should really pay attention to going forward. Organic net sales grew 1.6% in 2016, but declined 1.8% year over year in the first half of 2017. The food industry has seen very weak sales performance lately, and Kraft Heinz is no exception. Consumers are shifting from heavily processed packaged foods to fresher foods. Kraft Heinz was hit hard with lower demand in the first quarter, but saw improvement in the second quarter.

Two of the major themes weighing on KHC currently are slowing demand for packaged goods, on top of factors that could potentially squeeze margins in coming years. KHC is trying to navigate through a period when more consumers are avoiding its products. Ingredients that are not seen as healthy are being thrown to the side in favor of more natural, organically produced goods. For example, increasing health concerns around high fructose corn syrup, found in KHC's Ketchup, are linked to obesity levels, which continue to rise at alarming rates. Moreover, food agencies are taking aim at food producers over nutrition and the ethical issues inherent in the production and marketing of food.

Additionally, margins may potentially be squeezed in coming years as commodity cost inflation rises, while KHC also may be forced to spend more to improve its brand. Commodity input costs are rising for items such as milk, eggs, corn, wheat, and oils. This is especially affecting cheese and coffee, to the tune of $80 million in the second quarter, and stands to further eat into profit gains. This could force KHC to sell off assets in areas where inflation and competition are too drastic leading to lack of profit potential.

Moreover, KHC may be forced to increase its brand spending in coming years. Although KHC has referenced its need to up investments behind its brands to increase sales volumes in recent earnings calls, little has actually been done. Increasing such spending will likely reduce operating margins, which management is reluctant to do. This leaves KHC in a dilemma, one in which it needs to find a way to grow top-line revenue in coming years, or investors will continue to push its stock price lower.

A number of analyst downgrades have been the catalyst for intensifying selling pressure. The list of firms that downgraded KHC is as follows: Morgan Stanley, Goldman Sachs, Susquehanna.

Analysts and Hedge Funds Opinions

Goldman Sachs Group, Inc. (The) downgraded shares of The Kraft Heinz Company from a buy rating to a neutral rating in a report published last Wednesday. The firm currently has $87.00 price target on the stock, down from their prior price target of $95.00.

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

  • BidaskClub raised shares of The Kraft Heinz from a “strong sell” rating to a “sell” rating in a research note on Thursday.
  • Morgan Stanley dropped their price objective on shares of The Kraft Heinz from $95.00 to $92.00 and set an “overweight” rating on the stock in a research note on Friday, October 13th.
  • UBS AG reissued a “buy” rating and set a $89.00 price objective (down previously from $97.00) on shares of The Kraft Heinz in a research note on Friday, October 13th.
  • Zacks Investment Research lowered shares of The Kraft Heinz from a “hold” rating to a “sell” rating in a research note on Wednesday, October 11th.
  • Finally, Piper Jaffray Companies raised shares of The Kraft Heinz from a “neutral” rating to an “overweight” rating and dropped their price objective for the stock from $92.00 to $90.00 in a research note on Friday, October 6th.

Institutional investors that have recently made a change to their positions in the stock….

  • ETRADE Capital Management LLC lowered its holdings in shares of The Kraft Heinz Company by 3.2% during the 2nd quarter. The institutional investor owned 23,412 shares of the company’s stock after selling 780 shares during the period. ETRADE Capital Management LLC’s holdings in The Kraft Heinz were worth $2,005,000 at the end of the most recent reporting period.
  • Buckingham Capital Management Inc. lessened its position in shares of The Kraft Heinz Company by 0.3% in the second quarter. The fund owned 12,219 shares of the company’s stock after selling 36 shares during the quarter. Buckingham Capital Management Inc.’s holdings in The Kraft Heinz were worth $1,046,000 at the end of the most recent reporting period.

Summary

Fundamentally, the company remains under pressure, with flat revenue growth, amid potentially contracting operating margins.

With earnings in a couple of days, this should lead to volatile trading, and potentially be a catalyst for more investor selling.

The Kraft Heinz Company has a market cap of $94.17 billion, a P/E ratio of 24.78 and a beta of 0.44. The stock has a 50 day moving average of $78.65 and a 200 day moving average of $85.62. The Kraft Heinz Company has a 52 week low of $76.12 and a 52 week high of $97.77.


Option Trade - Kellogg Company (NYSE:K) Puts

Monday, October 30, 2017

** OPTION TRADE: Buy the K NOV 17 2017 60.000 PUT at approximately $1.20.

Sell price is left to your own judgment.

Kellogg Company (NYSE:K),  a manufacturer and marketer of ready-to-eat cereal and convenience foods, is set to announce its 3Q17 results tomorrow, October 31, and analysts expect the company’s sales and earnings results to underperform. Analysts project Kellogg’s sales and EPS (earnings per share) to fall on a YoY (year-over-year) basis. The company’s continued volume declines in North America and increased competitive activity could hurt its sales and profitability.

Analysts expect the company to announce earnings of $0.94 per share for the quarter. Kellogg has set its FY17 guidance at $3.97-4.03 EPS.

Kellogg last issued its quarterly earnings results on Thursday, August 3rd. The company reported $0.97 EPS for the quarter, topping analysts’ consensus estimates of $0.92 by $0.05. The business had revenue of $3.19 billion during the quarter, compared to the consensus estimate of $3.16 billion. Kellogg had a net margin of 6.12% and a return on equity of 70.22%. The company’s quarterly revenue was down 2.5% compared to the same quarter last year. During the same period in the previous year, the firm posted $0.91 earnings per share. On average, analysts expect Kellogg to post $3.97 EPS for the current fiscal year and $4.28 EPS for the next fiscal year.

Kellogg’s struggles in the US (SPY) haven’t abated, which is evident through lower volumes and sales. Analysts opine that the sluggish industry trend may not dissipate in the near term and could affect the financials of the packaged food manufacturers. Stiff competition among retailers is expected to squeeze margins for packaged food manufacturers.

Reduced product demand and increased competition have softened the prospects of stocks of packaged food manufacturing companies.

Influencing Factors

Kellogg has reported tepid sales driven by lower volumes, and its management expects its top line to remain subdued in fiscal 2017.

Weak consumption in the US (SPY), challenges in Europe, and increased competition is expected to result in lower volumes. These trends will affect Kellogg’s bottom-line performance.

The EPS for Kellogg’s peers are expected to take a hit from inflation in input costs and declining volumes. Citing challenges to profitability, Goldman Sachs recently downgraded Kraft Heinz (KHC) stock in anticipation of lower earnings.

Kellogg has been disappointing investors with its sluggish sales performance. The company’s sales figures have fallen in the past several quarters, and 3Q17 isn’t expected to break the trend. Analysts expect Kellogg to report sales of $3.20 in 3Q17, down 1.4% on a YoY (year-over-year) basis.

Low demand for packaged foods in North America and increased competition could restrict the company’s top-line growth rate.

Kellogg’s management estimates a 3% decline in its top line for fiscal 2017 on a constant-currency basis. Weak volume trends in North America, increased competitive activity, and a challenging retail environment are expected to drag its top line down.

Analysts and Hedge Funds Opinions

The sluggish industry trend is not likely to dissipate in the near term and could affect its volume growth, primarily in the US (SPY). Increased competition and a tough retail landscape could hurt its sales and profitability and keeps analysts on the sidelines.

Citing challenges ahead, Credit Suisse recently reduced its target price on Kellogg stock to $65.00 from $70.00 per share.

Kellogg Company had its price objective reduced by Morgan Stanley from $70.00 to $66.00 in a research note released on Friday morning. They currently have an equal weight rating on the stock.

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

  • Royal Bank Of Canada set a $81.00 price objective on Kellogg and gave the stock a “hold” rating in a report on Wednesday, October 18th.
  • Piper Jaffray Companies set a $78.00 price objective on Kellogg and gave the stock a “buy” rating in a report on Monday, August 7th.
  • Zacks Investment Research downgraded Kellogg from a “buy” rating to a “hold” rating in a report on Friday, August 4th.
  • J P Morgan Chase & Co upgraded Kellogg from a “neutral” rating to an “overweight” rating and upped their target price for the company from $76.00 to $78.00 in a report on Friday, August 4th.
  • Piper Jaffray Companies lowered Kellogg from an overweight rating to a neutral rating and set a $78.00 price objective on the stock in a report on Tuesday, September 19th.
  • BMO Capital Markets restated a hold rating and issued a $78.00 price objective on shares of Kellogg in a report on Wednesday, September 6th.
  •  Finally, Deutsche Bank AG reiterated a “hold” rating and issued a $74.00 target price (up previously from $71.00) on shares of Kellogg in a report on Wednesday, August 9th.

Three research analysts have rated the stock with a sell rating, nine have assigned a hold rating and one has issued a buy rating to the stock. The company has an average rating of “Hold” and a consensus price target of $72.55.

Summary

Kellogg stock has fallen 16.6% on a year-to-date basis and has underperformed the S&P 500 (SPX-INDEX), which rose 15.0% on October 20, 2017.

Kellogg Company has a one year low of $59.82 and a one year high of $78.37. The stock has a market capitalization of $21.22 billion, a P/E ratio of 27.83 and a beta of 0.48. The stock’s 50 day moving average is $64.12 and its 200-day moving average is $68.48.






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