“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, December 18, 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 - Winnebago Industries, Inc. (NYSE:WGO) Calls

Tuesday, December 19, 2017

** OPTION TRADE: Buy the WGO JAN 19 2018 60.000 CALL at approximately $2.00.

Sell price is left to your own judgment.

The RV giant Winnebago Industries, Inc. (NYSE:WGO), together with its subsidiaries, manufactures and sells recreation vehicles primarily for leisure travel and outdoor recreation activities, will report earnings before the market opens tomorrow, Wednesday, December 20, 2017. The consensus earnings estimate is $0.50 per share on revenue of $373.45 million and the Earnings Whisper number is $0.57 per share. Consensus estimates are for earnings to decline year-over-year by 16.67% with revenue increasing by 52.24%.

An earnings beat is expected.

Winnebago acquired towable RV-maker Grand Design in November 2016. Specialty-vehicle maker REV Group (REVG) - which owns RV companies Fleetwood and Renegade but also sells fire-trucks, ambulances and other vehicles - is expected to report EPS of 8 cents on revenue of $743 million when fiscal Q4 results come out on Tuesday. The reports come as the RV industry enjoys resurgence, helped by some big acquisitions, cheaper towable RVs, and younger consumers who have found more ways to use the vehicles.

Short interest has decreased by 12.9% since the company's last earnings release.

Influencing Factors

Shares have jumped almost 80% in 2017 as investors cheered the recreational-vehicle giant's sharply improving operating trends. Most of the good news is due to Winnebago's acquisition of the Grand Design brand, which has sent sales soaring this year, with revenue rising 59% over the past 12 months.

And in the last three months, shares of Winnebago Industries have outperformed the industry it belongs to. The stock has surged 48% compared with the industry's gain of 33.8% during the period.

That franchise's focus on high-margin towable RVs, meanwhile, is lifting overall profitability to new records. Gross margin expanded by over 4 full percentage points last quarter to help earnings spike 61%.

Look for Winnebago's top and bottom lines to continue benefiting from the Grand Design acquisition that has filled out its RV portfolio.

Its financial priorities for the new fiscal year include paying down the hefty debt burden that came with this purchase. CEO Michael Happe and his team are pledged to balance that important goal with continuing to invest in the business through the factory expansions and research and development work that keeps its RV products among the most popular choices in the industry.

Winnebago Industries’ earnings over the next few years are expected to increase by 51.16%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

Analysts and Hedge Funds Opinions

Zacks Investment Research upgraded shares of Winnebago Industries from a “hold” rating to a “strong-buy” rating and set a $53.00 target price on the stock in a research note on Thursday, October 5th.

According to Zacks, “Winnebago has been focusing to increase its production of Class A gas and Class C motorhomes by building new facilities, which will lead to a rise in product demand, in future. The company’ shares repurchase programs and frequent dividend payments will boost its shareholders’ value. Moreover, in the last three months, its shares have outperformed in the industry it belongs to.”

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

  • Robert W. Baird boosted their price objective on Winnebago Industries from $48.00 to $52.00 and gave the stock an outperform rating in a research report on Friday, November 3rd.
  • BMO Capital Markets boosted their price objective on Winnebago Industries to $51.00 and gave the stock a market perform rating in a research report on Monday, October 23rd.
  • SunTrust Banks restated a hold rating and set a $45.00 target price on shares of Winnebago Industries in a research note on Friday, October 20th. They noted that the move was a valuation call.
  • ValuEngine cut shares of Winnebago Industries from a “strong-buy” rating to a “buy” rating in a research note on Monday, October 2nd.
  • Finally, Robert W. Baird reiterated an “outperform” rating and issued a $48.00 target price (up from $38.00) on shares of Winnebago Industries in a research note on Friday, October 20th.

Four analysts have rated the stock with a hold rating and six have issued a buy rating to the stock. Winnebago Industries presently has an average rating of “Buy” and an average price target of $46.17.

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

  • Griffin Asset Management Inc. purchased a new stake in Winnebago Industries in the third quarter valued at approximately $3,002,000.
  • California Public Employees Retirement System lifted its position in shares of Winnebago Industries by 3.6% in the third quarter. California Public Employees Retirement System now owns 94,300 shares of the construction company’s stock worth $4,220,000 after buying an additional 3,300 shares during the last quarter.
  •  Engineers Gate Manager LP lifted its position in shares of Winnebago Industries by 206.0% in the third quarter. Engineers Gate Manager LP now owns 74,210 shares of the construction company’s stock worth $3,321,000 after buying an additional 49,960 shares during the last quarter.
Summary

Winnebago Industries has a market cap of $1,782.78, a PE ratio of 19.06 and a beta of 2.06. The company has a quick ratio of 1.03, a current ratio of 1.88 and a debt-to-equity ratio of 0.62. Winnebago Industries, Inc. has a 12 month low of $24.15 and a 12 month high of $57.20.


Option Trade - Paychex, Inc. (NASDAQ:PAYX) Calls

Tuesday, December 19, 2017

** OPTION TRADE: Buy the PAYX JAN 19 2018 72.500 CALL at approximately $0.90.

Sell price is left to your own judgment.

The payroll and human resource solutions provider Paychex, Inc. (NASDAQ:PAYX) releases fiscal Q2 results Thursday before the market opens, and analysts see EPS rising 5% to 59 cents, on revenue of $823 million, up 7%.

Last quarter, the company delivered a positive earnings surprise of 3.33%. Also, the company has outperformed the Consensus Estimate in all of the trailing four quarters with an average positive earnings surprise of 2.22%.

PAYX seems to be well set on the growth trajectory. Paychex’s shares reached a 52-week high of $70.30 yesterday, eventually closing at $70.25. The company’s shares have surged 13.4% on a year-to-date basis, outperforming the 8.0% gain of the industry to which it belongs to.

The outperformance of the stock has been backed by the company’s impressive top line that witnessed 5-year (2012-2017) CAGR of 7.2%. Higher revenues resulted in better margins and profitability for the company, which has boosted investors’ confidence.

Also, deep domain expertise in human capital management solutions for payroll, HR, retirement, and insurance services, has boosted its customer base, thus driving revenues northward.

Influencing Factors

Paychex's investments in product development, technology and focus on building its sales force to support revenue growth are impressive. Also, product launches and joint venture initiatives in a less-than-half-penetrated market are encouraging.

Meanwhile, the company's top-line continues to be boosted by its inorganic growth strategies. In this context, Paychex's acquisition of HROI in August is worth mentioning. This is because this buyout is expected to drive this payroll and human resource solutions provider's clientele and revenues.

The industry in which Paychex operates has huge growth potential. The company mainly focuses on small- and mid-sized businesses looking for HR solutions. Paychex has nearly 605,000 payroll clients but the market is still highly untapped. Per the company, there are about 12 million businesses in the United States under its total addressable market, half of which are still unexploited.

Additionally, the company’s investments in product development, technology and focus on building its sales force to support revenue growth boost optimism. Further, product launches and other joint venture initiatives are likely to drive long-term growth. Also, its continuous share buybacks bode well for investors.

Analysts and Hedge Funds Opinions

BidaskClub raised shares of Paychex from a “buy” rating to a “strong-buy” rating in a research report on Thursday, December 7th.

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

  • Bank of America increased their price target on Paychex from $64.00 to $68.00 and gave the stock a “buy” rating in a research report on Wednesday, October 4th.
  • Morgan Stanley reiterated an “equal weight” rating and set a $59.00 price target (up from $55.00) on shares of Paychex in a research report on Wednesday, October 4th.
  •  Stifel Nicolaus reiterated a “hold” rating and set a $61.00 price target on shares of Paychex in a research report on Friday, August 18th.
  • Robert W. Baird reiterated a “hold” rating and set a $64.00 price target on shares of Paychex in a research report on Wednesday, October 4th.
  • Finally, BMO Capital Markets reiterated a “market perform” rating and set a $62.00 price target (up from $60.00) on shares of Paychex in a research report on Wednesday, October 4th.

Three analysts have rated the stock with a sell rating, thirteen have given a hold rating, two have assigned a buy rating and one has issued a strong buy rating to the company. The company currently has an average rating of “Hold” and a consensus target price of $61.19.

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

  • California Public Employees Retirement System raised its position in shares of Paychex, Inc. by 4.8% during the 3rd quarter. The institutional investor owned 816,386 shares of the business services provider’s stock after buying an additional 37,756 shares during the quarter. California Public Employees Retirement System owned about 0.23% of Paychex worth $48,951,000 at the end of the most recent quarter.
  • Vanguard Group Inc. raised its position in shares of Paychex by 2.6% during the 2nd quarter. Vanguard Group Inc. now owns 23,043,348 shares of the business services provider’s stock worth $1,312,089,000 after purchasing an additional 589,880 shares during the period.
  • FMR LLC raised its position in shares of Paychex by 6.2% during the 2nd quarter. FMR LLC now owns 10,476,188 shares of the business services provider’s stock worth $596,514,000 after purchasing an additional 610,088 shares during the period.
  • Bank of New York Mellon Corp raised its position in shares of Paychex by 0.8% during the 3rd quarter. Bank of New York Mellon Corp now owns 7,901,485 shares of the business services provider’s stock worth $473,772,000 after purchasing an additional 64,254 shares during the period.

Summary

With 14 acquisitions since its inception, Paychex has significantly improved its solutions suite and total addressable market (TAM). These have acted as revenue boosters.

The latest addition of HR Outsourcing Holdings, Inc. (HROI) has exposed it to the fast growing professional employer organization (PEO) industry. We believe the acquisition is a strategic fit for Paychex as PEO services are turning into a preferred choice over in-house HR management departments.

Paychex, Inc.  has a 1 year low of $54.20 and a 1 year high of $69.26. The company has a market capitalization of $24,729.04, a P/E ratio of 30.32, a P/E/G ratio of 3.74 and a beta of 0.99.


Option Trade - CarMax, Inc. (NYSE:KMX) Calls

Tuesday, December 19, 2017

** OPTION TRADE: Buy the KMX JAN 19 2018 72.500 CALL at approximately $1.10.

Sell price is left to your own judgment.

Auto retailer CarMax, Inc. (NYSE:KMX) will report its third-quarter numbers before the market opens on Thursday, December 21, 2017. The consensus earnings estimate is $0.82 per share on revenue of $4.03 billion and the Earnings Whisper number is $0.84 per share. Consensus estimates are for year-over-year earnings growth of 13.89% with revenue increasing by 8.87%.

While the auto sector has certainly cooled this year, conditions remain very upbeat. In November, industry-wide auto sales were an annualized 17.48 million, which was definitely a strong reading, but was down from an 18.1 million annualized rate in October, and lower than the 17.8 million analysts expected. October’s number was inflated due to high demand for vehicle replacement from this year’s big hurricanes.

CarMax has reported better than expected profits and sales the last three quarters, but shares have trended lower over the last two months, so posting solid numbers will erase some of its recent losses.

With the recent selling pressure, the stock’s P/E has fallen to 18.5, which is reasonable with earnings expected to rise 6.5% next year, and by 13.1% per annum over the next five years.

Short interest has decreased by 53.5% since the company's last earnings release; and overall earnings estimates have been revised higher since the company's last earnings release.

Influencing Factors

CarMax aims at the used-car market and is one of the strongest among its peers. In the fiscal 2017, used vehicle sales rose 6.7%, supported by an 8.3% year-over-year increase in used car units sold.

The Richmond, VA-based company is also following an aggressive store expansion scheme in order to grow its presence in the existing and new markets. It opened a total of six stores during the first two quarters of fiscal 2018.

Significant increase in cash outflows from operations and rising capital expenditure might affect CarMax's revenues. Further for fiscal 2018, the company projects capital expenditures of around $325 million.

Analysts and Hedge Funds Opinions

Analysts at Oppenheimer increased their Q3 2018 earnings per share estimates for CarMax in a research report issued to clients and investors last Wednesday. Oppenheimer analyst B. Nagel now expects that the company will post earnings per share of $0.80 for the quarter, up from their previous estimate of $0.78. Oppenheimer currently has a “Hold” rating and an $80.00 price objective on the stock. Oppenheimer also issued estimates for CarMax’s FY2018 earnings at $3.77 EPS.

According to Zacks Investment Research, "CarMax is one of the strongest operators in the used-car market and holds a significant market share, among its peers. The company is also following an aggressive store expansion initiative to strengthen its presence and cater to a larger customer group. Moreover, it enhances shareholders value by undertaking frequent share buyback programs. Also, in the last six months, its shares have outperformed the industry it belongs to. However, significant cash outflows from operations, huge capital expenditures and volatile used car prices are few headwinds CarMax is facing."

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

  • CarMax was upgraded by research analysts at Northcoast Research from a “neutral” rating to a “buy” rating in a report issued last Thursday.
  • Citigroup lifted their price target on shares of CarMax to $84.00 and gave the company a “buy” rating in a research report on Monday, September 25th.
  • Goldman Sachs Group downgraded shares of CarMax from a “buy” rating to a “neutral” rating and lifted their price target for the company from $74.00 to $79.00 in a research report on Monday, September 25th.
  • Wedbush reiterated an “outperform” rating and set a $81.00 price target (up from $77.00) on shares of CarMax in a research report on Monday, September 25th.
  • Zacks Investment Research upgraded shares of CarMax from a “hold” rating to a “buy” rating and set a $77.00 target price on the stock in a report on Friday, September 8th.
  • Deutsche Bank restated a “buy” rating and issued a $84.00 target price on shares of CarMax in a report on Monday, September 25th.
  • Finally, Berenberg Bank initiated coverage on shares of CarMax in a report on Wednesday, October 4th. They issued a “hold” rating and an $83.00 target price on the stock.

One research analyst has rated the stock with a sell rating, eleven have issued a hold rating and seven have assigned a buy rating to the company’s stock. The stock currently has an average rating of “Hold” and an average target price of $79.57.

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

  • Vanguard Group Inc. grew its stake in CarMax by 2.1% in the 2nd quarter. Vanguard Group Inc. now owns 18,185,184 shares of the company’s stock worth $1,146,758,000 after acquiring an additional 380,038 shares during the period.
  • BlackRock Inc. grew its stake in CarMax by 0.5% in the 2nd quarter. BlackRock Inc. now owns 11,142,473 shares of the company’s stock worth $702,643,000 after acquiring an additional 53,840 shares during the period.
  • Principal Financial Group Inc. grew its stake in CarMax by 1.5% in the 3rd quarter. Principal Financial Group Inc. now owns 9,319,193 shares of the company’s stock worth $706,487,000 after acquiring an additional 142,175 shares during the period.
  • Broad Run Investment Management LLC grew its stake in CarMax by 0.9% in the 2nd quarter. Broad Run Investment Management LLC now owns 3,377,241 shares of the company’s stock worth $212,969,000 after acquiring an additional 29,846 shares during the period.

Summary

CarMax has a 52 week low of $54.29 and a 52 week high of $77.64. The company has a debt-to-equity ratio of 3.82, a quick ratio of 0.48 and a current ratio of 2.33. The firm has a market cap of $12,351.95, a P/E ratio of 18.61, a price-to-earnings-growth ratio of 1.14 and a beta of 1.48.




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