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 – Tripadvisor Inc (NASDAQ:TRIP) Puts
Thursday, December 22, 2016
**OPTION TRADE: Buy the TRIP JAN 20 2017 45.000 PUT at approximately $1.20. Sell price is left to your own judgment.
After years of double-digit growth,
Tripadvisor Inc (NASDAQ:TRIP) revenue finally seems to have peaked in 2016. The
bad news for TRIP investors is that peaking revenue typically triggers a
Increasing competition from Airbnb and
others in the online travel space seems to be catching up with TRIP. In an
effort to draw new customers to the platform, TripAdvisor has ramped up its
marketing spend this year. In addition, TRIP has invested heavily in
transitioning its platform from desktop to mobile and expanding its business
into online booking.
Predictably, these expenses have weighed
on the company’s bottom line. In Q1 and Q3 of this year, TRIP year-over-year
earnings per share declined 41% and 31%, respectively.
To make matters worse, TRIP’s
reinvention seems to be going a bit slower than anticipated.
TRIP is now on pace to close out 2016
down 45.5% on the year, making it a prime candidate for year-end tax loss
Three investment analysts have rated the
stock with a sell rating, twenty-one have assigned a hold rating and three have
issued a buy rating to the company’s stock.
TripAdvisor has a 12 month low of $45.95 and a 12 month high of $87.50. The firm’s 50-day moving average price is $55.97 and its 200-day moving average price is $62.45. The stock has a market cap of $6.94 billion, a P/E ratio of 57.21 and a beta of 2.15.
Option Trade – Cintas Corporation (NASDAQ:CTAS) Calls
Thursday, December 22, 2016
**OPTION TRADE: Buy the CTAS JAN 20 2017 125.000 call at approximately $1.10. Sell price is left to your own judgment.
Leading business service provider, Cintas Corp. (NASDAQ:CTAS) will be announcing its Q217 earnings results today, Thursday, December 22nd, after the closing bell. Analysts expect the company to announce earnings of $1.15 per share and revenue of $1.29 billion for the quarter. Cintas Corp. has set its FY17 guidance at $4.55-$4.63 EPS. Cintas has beaten estimates in each of the last four quarters with an average positive earnings surprise of 5.54%.
Cintas Corp. last released its quarterly earnings data on Tuesday, September 27th. The company reported $1.26 EPS for the quarter, topping the consensus estimate of $1.08 by $0.18. Cintas Corp. had a return on equity of 24.60% and a net margin of 14.63%. The company earned $1.29 billion during the quarter.
Benchmark index Nasdaq, Inc. NDAQ recently re-ranked the NASDAQ-100 index and have now included Cintas which will be effective from Dec 19, 2016.
Cintas started fiscal 2017 on a positive note, recording solid first-quarter results on the back of healthy top-line growth. Both earnings and revenues improved year over year.
While quarterly revenues increased 7.9% to $1,294.1 million, organic growth improved 5.7% year over year. The superior top-line performance was primarily attributable to the addition of new customers, strong customer retention and higher penetration of existing customers through better and innovative products and services.
Cintas aims to continually achieve revenue build up by increasing penetration levels at existing customers and broadening the customer base to include fresh business segments. The company also identifies additional product and service opportunities for its current and future customers to expand its portfolio. This focused approach for steady top-line growth is commendable.
Cintas has inked a definitive agreement to acquire rival G&K Services Inc. GK to fuel its growth momentum. The combined company is likely to cater to over one billion business customers with an extended product portfolio and additional processing capacity. Customer service is also likely to improve with increased route density. The synergies from the combined operations are likely to yield $130 million to $140 million in cost savings and the transaction is anticipated to be accretive to Cintas' earnings from the second year of its operation.
The total North American market for uniform rentals is worth approximately $16 billion, and Cintas controls about 25% of it. To put Cintas' size in perspective, its three largest competitors in this space -- Aramark (NYSE: ARMK), UniFirst (NYSE: UNF), and G&K Services (NASDAQ: GK) -- combine to control only about another 25%. The rest of the market is fragmented among many other smaller local or regional players.
This is great for Cintas, because it solidifies its standing in the undisputed top spot. Size and scale really matter in this kind of route-based service business, since the fixed cost of deliveries can be spread out, while there isn't much room for differentiation in the product. So even though Cintas paid a premium of about 20% for G&K, it expects that investment to pay off. Specifically, the company expects to achieve cost synergies of $130 million to $140 million within four years of the transactions close and accretive to EPS within two.
Buoyed by the healthy first-quarter fiscal 2017 results, Cintas also increased its guidance for fiscal 2017. The company expects revenues in the range of $5.160 billion to $5.225 billion, up 5.2-6.5% year over year. Earnings from continuing operations are expected to be within $4.55-$4.63 per share, up from $4.35-$4.45 anticipated earlier. The current earnings per share guidance represent a year-over-year improvement of 11.2-13.2%. The bullish guidance looks quite enterprising for the investors. In addition, healthy organic growth over the past few quarters has lent stability to the revenues and has enabled the company to comfortably beat the earnings estimates for a positive earnings surprise of 5.5% over the trailing four quarters.
Cintas Corp.‘s stock had its “buy” rating restated by research analysts at Nomura in a report released on Sunday.
One equities research analyst has rated the stock with a sell rating, five have given a hold rating and five have issued a buy rating to the company’s stock.
Cintas Corp. has a market capitalization of $12.61 billion, a P/E ratio of 18.06 and a beta of 0.88. Cintas Corp. has a 12-month low of $80.00 and a 12-month high of $122.21. The company has a 50-day moving average price of $113.15 and a 200 day moving average price of $108.20.
There's no question that Cintas has grown dramatically. That has made it a strong-performing stock, and if those favorable conditions continue, Cintas will likely keep doing well.
Option Trade – Bank of America Corp (NYSE:BAC) Calls
Monday, December 19, 2016
**OPTION TRADE: Buy the BAC JAN 20 2017 23.000 call at approximately $0.70. Sell price is left to your own judgment.
A recent research report by Oppenheimer highlighted that once again the major beneficiaries of the rate hike would be the banks involved in excessive fixed income and currency trading. As well, the FOMC also signaled that it is looking to raise rates three more times during 2017. This signal sent bond yields soaring and the U.S. Treasury yield curve into steeper and steeper territory, which is fantastic news for financial institutions like Bank of America Corp (NYSE:BAC) – and from that view point, the bank still appears to be a lucrative pick.
The $229 billion behemoth of banking jumped ahead last month as the fortunes of finance found new life with the sudden rise in long-term interest rates. As the yield curve has steepened and expectations for net interest margin -- a bank's lifeblood -- expands, shares of BAC have rallied over 35% from $17 to $23.
BofA’s big move to the upside began with a spike in volume the week of the election. Volume has remained above average as the shares rallied, only dipping back below average amid periods of consolidation. That’s very bullish action, and shows that the buyers are definitely in control of BAC stock here.
Also, part of the inspiration for this rally is probably due to a general sense that Dodd-Frank regulations will be rolled back and benefit most investment banks and asset managers, which is a significant part of BAC's business in addition to retail deposits and business lending.
The steeper the yield curve gets, the wider BAC’s net interest margin is likely to become, which will drive higher revenues for the company. All of this combined with the still sky-high expectations traders have for financial institutions under a Trump presidency — based on an assumed reversal of the Dodd-Frank Act, a change to the corporate and individual tax code and more trading and loan activity driven by increased fiscal stimulus and economic growth — makes for a bullish option trade on BAC.
BAC has been steadily rising since the presidential election and, after a short one-week consolidation; the stock is indicating its bullish run is far from over. Often times stocks will make dramatic moves to the upside in three stages, and it is believed that BAC is about to enter its third stage. The $3 move from $17 to $20 was the first stage. After a short consolidation at $20, the next $3 move from $20 to $23 was the second stage. Now that the stock has consolidated just below $23, it is expect that the third stage will take the stock from $23 to $26.
It is anticipated that this move will occur before the company is scheduled to release its quarterly earnings on Jan. 13, which should enable us to take advantage of not only the positive stock movement, but also the increase in implied volatility in the run-up to the earnings announcement.
The 52-week range for the stock is $10.99 and $23.39and during the previous trading session the stock touched its highest price at $23.32. Its introductory price for the day was $23.32. The stock’s current distance from 20-Day Simple Moving Average (SMA20) is 5.49% where (SMA50) and (SMA200) are 20.70% and 47.32% respectively.