“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, November 13, 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.

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Option Trade - Foot Locker, Inc. (NYSE:FL) PUTS

Thursday, November 16, 2017

** OPTION TRADE: Buy the FL 2017 30.000 DEC 15 PUT at approximately $1.80.

Sell price is left to your own judgment.

Foot Locker, Inc. (NYSE:FL), a retailer of shoes and apparel, is expected to release it 3Q17 results tomorrow, November 17, 2017.

Wall Street analysts expect Foot Locker’s earnings to fall 29% YoY (year-over-year) to $0.80 per share on total sales of $1.83 billion. This shows a sharp decline from earnings of $1.13 per share reported in the year-ago period. Analysts expect revenues of $1,83 million, down from $1,886 million generated in the prior-year quarter.

The company’s performance wasn’t impressive during the first half of the current fiscal year. It missed the revenue and earnings expectations in the first and second quarter.

The earnings per share fell 2.2% YoY in 1Q17 and 34% YoY in 2Q17. In comparison, Wall Street expected the earnings to fall 4.3% and 0.5%.

So far this year, the total sales have fallen 1.7% YoY to $3.7 billion.

Management blamed slumping demand and a lack of innovative new products on the market. "We believe these industry dynamics will persist through 2017," executives warned as they reduced their growth outlook to target declines of between 3% and 4% for the rest of the year.

Influencing Factors

Challenging retail landscape and changing consumer spending pattern have resulted in a tough operating environment for Foot Locker. In fact, the company's dismal top line and comparable-store sales performance concerns investors. Following meager growth of 0.7% in the first quarter of fiscal 2017, total sales declined 4.4% in the second quarter. Meanwhile, comparable-store sales fell 6% in the second quarter, following an increase of 0.5% in the preceding quarter.

Management envisions adjusted earnings per share decline of 20-30% (excluding a benefit of 12 cents from 53rd week) for the second half of 2017. In the second quarter of fiscal 2017, earnings plunged 34% year over year. Foot Locker had projected gross margin contraction in the range of 230-250 basis points (bps) for the third quarter. Gross margin contracted 340 basis points in the second quarter, after shrinking 100 bps in the first.

In late September, Nike (NYSE: NKE) , which supplies the majority of Foot Locker's inventory, posted declining results in its U.S. segment even as price cuts sent gross profit margin lower.

Neither Nike nor Foot Locker expects the market to return to growth over the upcoming holiday shopping season, so shareholders should brace for another quarter of sales declines and weaker profits. Foot Locker's long-term rebound will depend mainly on Nike's success at improving its product portfolio, so that customers are again motivated to visit Foot Locker's stores in person and pay premium prices for its athletic shoes.

However, broader industry dynamics suggest there are too many stores, and too much inventory, on the market today. As a result, Foot Locker will be under pressure to trim its retailing footprint that, as of August, stood at 3,359 locations across the U.S.

According to Lauren Peters, Foot Locker’s executive vice president and CFO, “the proportion of occupancy deleverage and lower merchandise margins, as we saw in the second quarter, should be similar in the second half.”

Also, increased promotional activity in the direct-to-customer and online channels caused Foot Locker’s merchandise rate to fall during the first half of the year. As a result, Foot Locker’s gross margin fell by 309 basis points and 340 basis points during 1Q17 and 2Q17.

Analysts and Hedge Funds Opinions

Foot Locker, Inc.‘s stock had its “hold” rating reiterated by stock analysts at Cowen and Company in a research note issued on Friday. They currently have a $33.00 target price on the athletic footwear retailer’s stock.

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

•     11/15/2017 – Foot Locker was given a new $36.00 price target on by analysts at Canaccord Genuity. They now have a “hold” rating on the stock.
•     11/14/2017 – Foot Locker was given a new $35.00 price target on by analysts at Piper Jaffray Companies. They now have a “hold” rating on the stock.
•     11/13/2017 – Foot Locker had its price target lowered by analysts at Telsey Advisory Group from $36.00 to $34.00. They now have a “market perform” rating on the stock.
•     11/10/2017 – Foot Locker had its “hold” rating reaffirmed by analysts at Cowen and Company. They now have a $33.00 price target on the stock.
•     11/1/2017 – Foot Locker had its “neutral” rating reaffirmed by analysts at B. Riley.
•     10/29/2017 – Foot Locker had its “hold” rating reaffirmed by analysts at Robert W. Baird. They now have a $37.00 price target on the stock.
•     10/23/2017 – Foot Locker was downgraded by analysts at Buckingham Research from a “buy” rating to a “neutral” rating. They noted that the move was a valuation call. They noted that the move was a valuation call.

Foot Locker is covered by 21 Wall Street analysts—33% rated the stock as a “buy,” 57% rated it as a “hold,” and 10% rated it as a “sell.”

Summary

Currently, Foot Locker (FL) is sitting at a YTD (year-to-date) loss of ~57% due to two weak results in a row. The company lost 17% after its 1Q17 results and 29% after its 2Q17 results. After its 2Q17 results, Foot Locker witnessed its worst single-day fall since the recession.

On August 16, 2017 we executed a trade on FootLocker as a PUT trade at 1.60; which then climbed to $13.00 – and the stock is still in no better position.

Foot Locker, Inc. has a current ratio of 5.63, a quick ratio of 2.88 and a debt-to-equity ratio of 0.04. The company has a market capitalization of $3,675.29, a price-to-earnings ratio of 6.62, a PEG ratio of 2.07 and a beta of 0.66. Foot Locker, Inc. has a 52-week low of $28.42 and a 52-week high of $79.43.

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Option Trade - Applied Materials, Inc. (NASDAQ:AMAT) Calls

Wednesday, November 15, 2017

** OPTION TRADE: Buy the AMAT DEC 15 2017 57.500 CALL at approximately $1.80.

Sell price is left to your own judgment.

The chip-gear maker Applied Materials, Inc. (NASDAQ:AMAT), headquartered in Santa Clara, manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide, reports fiscal Q4 results after the market close on Thursday November 16, 2017. Analysts expect the Santa Clara, Calif.-based company to earn 91 cents a share, up 38% year over year, on sales of $3.94 billion, up 20%, in the quarter ended Oct. 29.

The company has benefited from strong chip production trends as well as growth in manufacturing OLED displays. Shares have soared 75% this year, making it one of the best-performing stocks in an already hot Electronic-Semiconductor Equipment industry group.

Last quarter, it delivered a positive earnings surprise of 3.61%.The company's surprise history has been pretty impressive. It beat estimates in each of the trailing four quarters, with an average positive earnings surprise of 2.66%.

Influencing Factors

There is a strong demand for Applied Materials services as the company has well-differentiated products and high market share, and is efficiently delivering key enabling technology to logic and foundry customers. Service is an important part of Applied's portfolio, which grew significantly in the last quarter.

The Applied Global Services (AGS) segment increased 8.6% sequentially and 19.6% year over year. The figure is further expected to increase in the upcoming quarter, driven by improved device and yield performance. The Consensus estimate for the upcoming quarter for AGS is pegged at $812 million.

Also, the company has gained considerable success in expanding beyond semiconductors, particularly in display. New display technologies such as OLED are opening new market opportunities for Applied Materials. The available market opportunity is now more than 10 times that of the traditional LCD.

In the last quarter, the Display segment was up 4.9% sequentially and 31.0% from the year-ago level.

The segment is further expected to perform well driven by significant opportunities coming from investments in areas such as artificial intelligence, big data, cloud infrastructure, Internet of Things (IoT), virtual reality and smart vehicles. The Consensus estimate for the upcoming quarter for Display segment is pegged at $676 million.

Analysts and Hedge Funds Opinions

Royal Bank Of Canada reaffirmed their buy rating on shares of Applied Materials, Inc. in a report issued Friday week.

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

• B. Riley reaffirmed a “buy” rating and issued a $61.00 target price on shares of Applied Materials in a research report on Saturday, August 19th.
• BidaskClub cut shares of Applied Materials from a “strong-buy” rating to a “buy” rating in a research report on Wednesday, August 2nd.
• Deutsche Bank AG reaffirmed a buy rating and set a $58.00 price objective on shares of Applied Materials in a report on Thursday, October 12th.
• Citigroup Inc. reaffirmed a buy rating and set a $58.00 price objective on shares of Applied Materials in a report on Thursday, October 12th.
• Stifel Nicolaus reaffirmed a buy rating on shares of Applied Materials in a report on Sunday, October 1st.
• Finally, B. Riley reaffirmed a buy rating and set a $63.00 price objective on shares of Applied Materials in a report on Saturday, September 30th.

Three research analysts have rated the stock with a hold rating and twenty-two have assigned a buy rating to the company. The stock presently has a consensus rating of “Buy” and a consensus target price of $59.64.

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

• Sensato Investors LLC grew its holdings in shares of Applied Materials by 852.2% during the 1st quarter. Sensato Investors LLC now owns 197,600 shares of the manufacturing equipment provider’s stock valued at $7,687,000 after purchasing an additional 176,848 shares during the last quarter.
• Shelton Capital Management grew its holdings in shares of Applied Materials by 24.0% during the 1st quarter. Shelton Capital Management now owns 223,426 shares of the manufacturing equipment provider’s stock valued at $8,691,000 after purchasing an additional 43,222 shares during the last quarter.

Summary

Applied Materials, Inc. has a 1 year low of $28.93 and a 1 year high of $57.34. The stock has a market capitalization of $60,020.00, a P/E ratio of 18.91, and a PEG ratio of 0.90 and a beta of 1.85. The company has a debt-to-equity ratio of 0.61, a current ratio of 2.91 and a quick ratio of 2.25.

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Option Trade - Cisco Systems, Inc. (NASDAQ:CSCO) Calls

Wednesday, November 15, 2017

** OPTION TRADE: Buy the CSCO DEC 15 2017 35.000 CALL at approximately $0.57.

Sell price is left to your own judgment.

The computer networking giant Cisco Systems, Inc. (NASDAQ:CSCO), that designs and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world, reports after the close today. The consensus earnings estimate is $0.60 per share on revenue of $12.14 billion but the Earnings Whisper number is $0.61 per share. Investor sentiment going into the company's earnings release has 72% expecting an earnings beat. The Company’s guidance was for earnings of $0.59 to $0.61 per share.

Overall earnings estimates have been revised higher since the company's last earnings release…with Cisco expected to beat earnings estimates.

Cisco has beaten the Consensus Estimate in three of the trailing four quarters with an average positive surprise of 2.16%. Notably, earnings were in line with the consensus estimate in the prior quarter.

In the quarter under review, Cisco will realign reporting segments into five distinct categories - Infrastructure Platforms (57.4% of total revenues in the last quarter), Applications (10%), Security (4.6%), Other Products (2.3%) and Services (25.6%).

Cisco's stock has returned 12.5% year to date, outperforming the 11.1% rally of the industry.

Influencing Factors

Cisco is expected to deliver stellar performance in the Data Center segment. The completion of the Springpath acquisition during the quarter is likely to fortify the company's position in the hyperconverged infrastructure system (HCI), where Nutanix Inc. NTNX is a dominant player.

The addition of AppDynamics (acquired in March) is likely to drive the top line, which is part of “Applications” – which consist of Collaboration and Other Products (IoT and Analytics).

Cisco's expanding footprint in the rapidly-growing security market bodes well. The company's security solutions continue to add customers.

In the last quarter, Cisco reported double-digit order growth and 49% deferred revenue growth for the segment. The next-generation firewall portfolio added 6K new customers in the quarter. Total customer base touched almost 80K at the end of the quarter.

The Consensus Estimate for the Security segment revenues is currently pegged at $574 million.

Cisco's extended partnerships with the likes of Apple Inc., International Business Machines Corporation and Microsoft Corporation are likely boost growth, particularly in the cloud and IoT.

During the quarter, Viacom Inc. inked a partnership with Cisco to develop an enhanced video distribution network foundation. The alliance will enable Viacom and its affiliates to leverage the advanced features of Cisco D9800 Network Transport Receiver and realize greater efficiencies on content reception and distribution.

Cisco's recently announced that are to acquire collaboration software provider BroadSoft for $1.9 billion. BroadSoft's suite of cloud-based software collaboration offerings are right in line with CEO Chuck Robbin's push to transition away from legacy networking switches and routers.

The plan is to focus on cloud software solutions and data center infrastructure-as-a-service, which in turn generates recurring revenue. Ongoing sources of revenue and streamlining operations are at the heart of Cisco's transition. Despite some negativity surrounding Cisco as its fiscal 2018 first-quarter earnings release nears, Robbins' efforts are beginning to pay off.

Analysts and Hedge Funds Opinions

Deutsche Bank analyst Vijay Bhagavath, who has a buy rating and a $40 price target on the stock, said Cisco stands to benefit from improving IT infrastructure spending trends in the U.S., but noted that Cisco is undergoing a shift in how it reports revenue given the software focus. Bhagavath noted:

CSCO’s Software, Next Gen Security and Meraki Cloud Management solutions continue to see “double digit” deferred revenue growth trends (purchased increasingly using a Software Subscriptions model) in our view. We see CSCO likely to focus on meaningfully scaling the company’s Software and Cloud Security Portfolios - in terms of inorganic growth and new product introductions (delivered in a “As a Service” model to customers world-wide).

Cisco Systems, Inc.‘s stock had its “buy” rating reaffirmed by equities researchers at Robert W. Baird in a report issued on Friday. They currently have a $38.00 price target on the network equipment provider’s stock. Robert W. Baird’s target price would suggest a potential upside of 12.03% from the company’s current price.

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

• Vetr upgraded Cisco Systems from a “hold” rating to a “buy” rating and set a $33.39 price target .
• Deutsche Bank AG reiterated a “buy” rating and issued a $40.00 price target on shares of Cisco Systems in a research report on Tuesday, August 8th.
• Oppenheimer Holdings, Inc. reissued a “buy” rating and issued a $36.00 price target on shares of Cisco Systems in a research report on Friday, October 20th.
• ValuEngine raised shares of Cisco Systems from a “hold” rating to a “buy” rating in a research report on Tuesday, September 26th.
• Finally, Jefferies Group LLC reissued a “buy” rating and issued a $37.00 price target on shares of Cisco Systems in a research report on Friday, October 6th.

One analyst has rated the stock with a sell rating, thirteen have assigned a hold rating and twenty-two have given a buy rating to the company. The company presently has a consensus rating of “Buy” and an average price target of $36.31.

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

• Community Bank N.A. lifted its position in Cisco Systems, Inc. by 2.6% during the 2nd quarter. The fund owned 163,114 shares of the network equipment provider’s stock after purchasing an additional 4,109 shares during the quarter. Community Bank N.A.’s holdings in Cisco Systems were worth $5,103,000 at the end of the most recent reporting period.
• Boston Partners increased its holdings in shares of Cisco Systems by 304.2% in the first quarter. Boston Partners now owns 30,563,666 shares of the network equipment provider’s stock worth $1,033,052,000 after purchasing an additional 23,002,159 shares during the last quarter.
• Legal & General Group Plc grew its position in Cisco Systems by 2.4% in the second quarter. Legal & General Group Plc now owns 26,334,633 shares of the network equipment provider’s stock worth $824,310,000 after acquiring an additional 618,346 shares in the last quarter.

Summary

Cisco offers outstanding value. With Robbins' promise to become a leaner, more efficiently  run company Cisco's adjusted operating expenses dropped 7% last quarter. Priced at a mere 18.1 times past earnings, Cisco is well below its peer average of 34.4. Toss in its impressive 3.3% dividend yield, and Cisco easily makes a list of rock-solid cheap stocks.

Cisco Systems, Inc. has a 52-week low of $29.12 and a 52-week high of $34.75. The company has a market cap of $168,311.06, a P/E ratio of 15.66, a P/E/G ratio of 2.97 and a beta of 1.15. The company has a debt-to-equity ratio of 0.39, a quick ratio of 2.98 and a current ratio of 3.03.

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