“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, January 27, 2020

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.


You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO "Trading Capital Management"



Option Trade - Doubling-Down Zynga Inc (NASDAQ: ZNGA) Calls

Friday, January 31, 2020

** OPTION TRADE: Buy ZNGA JUN 18 8.000 CALL at approximately $0.12.

Sell price is left to your own judgment.

On Friday, January 17, 2020, we recommended a call option trade on mobile game maker Zynga Inc (NASDAQ: ZNGA). At this stage shares have pulled-back a bit, and our trade has halved. However, this may be another great buying opportunity as the pullback or correction for ZNGA may be over.

In the daily bar chart of ZNGA prices have pulled back this month to break below the rising 50-day moving average line and test the rising 200-day moving average line. Prices broke the support around $6.00 but have so far quickly rebounded to the upside.

The market expects Zynga to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended December 2019.

The stock is expected to move higher if expectations are met in the upcoming earnings report, which is expected to be released on February 5.

This maker of "FarmVille" and other online games is expected to post quarterly earnings of $0.06 per share in its upcoming report, which represents a year-over-year change of +200%.

Revenues are expected to be $417.57 million, up 56.2% from the year-ago quarter.

The consensus EPS estimate for the quarter has been revised 6.25% higher over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Positive Thoughts.....

Zynga is best known for being the force behind wildly popular games such as “Words With Friends”, “Empires & Puzzles” and “Merge Dragon”. After posting an impressive 70% climb in 2019, there appears that the video game developer still has more fuel left in the tank.

And, according to SunTrust Robinson’s Matthew Thornton, he agrees. In his initiation note, the analyst points out that the already large gaming market, which was worth about $83 billion in 2019, is still expanding, with a 5-year 2018-2023 CAGR of 9.9%. He tells investors the companies that can prosper in this competitive and fragmented environment will be those with platform-exposure to the market, publishers with unique franchises or IP, network scale and ability to fund and execute robust live services, pipeline development and M&A. Based on this, Thornton has high hopes for ZNGA.

“ZNGA provides pure-play exposure to the large and fast growing global mobile gaming market with a growing (31% pro forma in 3Q19, driven by Merge Dragons and Empires & Puzzles) and diversified existing game portfolio and highly experienced management team and Board. In addition to a healthy existing portfolio, ZNGA has a strong pipeline (at least 7 games, including FarmVille, Harry Potter, Star Wars, Game of Thrones, and others) as well as a strong balance sheet and acquisition track record to augment organic growth with M&A in what is a highly fragmented market,” he wrote.

Taking all of this into consideration, the analyst puts the 2-year 2019-2021 revenue and EBITDA CAGR at 13% and 18%, respectively. Not to mention the company is also expected to surpass consensus estimates over the next few years.

In line with his bullish thesis, Thornton started his ZNGA coverage with a Buy recommendation.

Looking at the consensus breakdown, 6 Buys, 1 Hold and 1 Sell published in the last three months add up to a Moderate Buy.


Option Trade – Advanced Micro Devices, Inc. (NASDAQ:AMD) Calls

Friday, January 31, 2020

** OPTION TRADE: Buy AMD MAR 20 50.000 CALL at approximately $2.80.

Sell price is left to your own judgment.

The Santa Clara, Calif.-based company Advanced Micro Devices, Inc. (NASDAQ:AMD), a global semiconductor company, reported earnings this week, Tuesday January 28, 2020, after the market closed. AMD reported revenue and earnings of $2.13 billion and $0.27, better than the Consensus Estimates of $2.10 billion and $0.26.

Advanced Micro Devices Inc. shares fell Wednesday as soft console chip sales overshadowed data-center sales and while more than half the analysts covering the highflying stock hiked price targets.

AMD shares finished down 6% at $47.51, following an intraday low of $46.10, for their worst one-day performance since August 23, when summer trade war fears had reached a peak.

AMD stock was the biggest gainer on the S&P 500 in both 2018 and 2019. Over the past 12 months, AMD shares have rallied 147%, while the S&P 500 has gained 24%, the Nasdaq has grown 32% and the SOX chip index has increased 50%.

Of the 38 analysts who cover AMD, 14 have buy or overweight ratings, 21 have hold ratings and three have sell or underweight ratings. Of those 21 hiked their price targets, while one lowered theirs, resulting in a price target of $46.59, up from the previous day’s $43.30.

Expect AMD to recover and send their shares upwards.

Positive Factors…..

In the short term, one big headwind was AMD’s first-quarter revenue guidance of $1.75 billion to $1.85 billion while analysts had forecast $1.86 billion. AMD blamed soft console sales ahead of Sony Corp. and Microsoft Corp. rolling out new consoles later in the year. For the year, AMD’s forecast of a 28% to 30% rise in revenue, versus the Street’s forecast of 28%, hinged on an improvement in the second half of the year.

AMD's results reflected a clean beat and a bit weaker guidance for the first quarter. Strength in EPYC server CPUs were offset by weaker consoles ahead of new platforms and seasonal PC CPUs.

The 2020 sales growth guidance of 28-30% reflects expectations that the company will gain share again. CEO Lisa Su's huge Street credentials and Intel's 2020 guidance that calls for decelerating sales throughout the year render AMD's guidance as reasonable and achievable.

There appears to be significant upside for 2021/22, which makes this the AMD multi-year share-gain, dollar content gain CPU/GPU compute story that deserves a higher P/E multiple.

Momentum in Ryzen, Radeon and EPYC processors remains a key catalyst.

In the high-end desktop market, the company is banking on growing clout of its third-generation Ryzen Threadripper processor.

Moreover, Ryzen 4000 mobile processors powered laptops from ASUS, Acer, HP, Dell, Lenovo and other major OEMs, slated for release in 2020, are expected to help AMD in expanding presence in the commercial market.

Analysts….

Jefferies analyst Mark Lipacis, who has a buy rating and raised his price target to $58 from $56, called the outlook “conservative” and said that the company’s March 5 analyst day should be a catalyst for the stock. Lipacis feels sales of the company’s data-center Epyc chip still has a way to go.

“We expect server share gains to accelerate as cloud customers become more familiar with Epyc,” Lipacis said.

As well, Cowen analyst Matthew Ramsay, who has an outperform rating and a $60 price target, said “not much fundamentally changed” with AMD other than the soft console sales.

“While 1Q20 came in light due entirely to console seasonality, 2020 guidance should allow investors to feel comfortable with upside to consensus,” Ramsay said. “Importantly, we believe the guidance sets the table for upward revisions throughout the year with notebook & console the largest potential upside drivers, while server growth will be of the highest magnitude.”

Also, Summit Insight Group analyst Kinngai Chan upgraded shares of AMD from Hold to Buy.

AMD's computing and graphics fourth-quarter sales rose 30% quarter-over-quarter, thanks to client CPU market share gains and new GPU product launch, Chan said in a note. Weakness in game console business led to a sequential decline in revenues at its Enterprise, Embedded, and Semi-Custom business but gross margin expanded to 45% on favorable product mix.

Chan believes AMD gained significant market share in PCs in 2019 at its corporate average margin. Helped by sales of 7nm server CPUs, AMD will likely take share from Intel Corporation (NASDAQ: INTC) in 2020, at higher-than-corporate average margin.

The analyst expects gross margin expansion to accelerate through 2020 due to a higher contribution from its Server/data center business.

"While the risk of Intel price aggression remains, we believe AMD's design wins in the server/datacenter has hit a critical mass and should give AMD plenty of gross margin leverage through 2020," Chan wrote in a note.

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

  • Rosenblatt Securities analyst Hans Mosesmann maintained a Buy rating and $65 price target.
  • Wedbush analyst Matt Bryson reiterated an Outperform rating and hiked the price target from $51.50 to $75. Although trimming its estimates to match AMD's guidance, Wedbush raised its 2021 numbers, assuming more EPYC sales – a result it feels will create a more favorable growth and margin profile for the year.
  • Wells Fargo analyst Aaron Rakers maintained an Overweight rating and $55 price target.

Summary

AMD has set a very beatable bar. The guidance implied a significant second-half slowdown in Computer and Graphics revenue growth and little like-for-like gross margin appreciation. Given the fourth-quarter strength in the faster growing Computing and Graphics and EPYC server markets, there seems to be plenty of room for upside.


Option Trade – Autodesk, Inc. (NASDAQ:ADSK) Calls

Thursday, January 30, 2020

** OPTION TRADE: Buy ADSK FEB 21 2020 205.000 CALLS at approximately $2.65.
Sell price is left to your own judgment.

Computer-aided design software firm Autodesk, Inc. (NASDAQ:ADSK) has made some big moves on the charts in recent months. Five years ago, this was a $50 stock. Today, ADSK stock trades up around $200, with major growth driven by a rapid uptake of Autodesk’s various software cloud subscription services across the AEC market.

Autodesk dominates the AEC software vertical with widely-used and largely unparalleled solutions such as AutoCAD (used for 2D and 3D modeling) and Revit (used for Building Information Modeling). This dominant positioning means that as AEC firms up their software spend in 2020 — and they will, because AEC markets were among the hardest hit by trade issues — most of them will up spend on Autodesk services. Autodesk’s revenue, margin, and profit trends will consequently remain healthy over the next several quarters, and that will provide support for continued gains in ADSK stock.

After rising 13.5% in 2018, enterprise software spending globally rose just 8.8% in 2019 amid rising geopolitical tension and increasing economic instability. Those trade tensions are now easing, and consequently, enterprise software spending trends are rebounding. It is expected that enterprise software spend is expected to rise nearly 11% in 2020.

This step up in enterprise software spend will provide revenue tailwinds for Autodesk, meaning that the company’s revenue growth trajectory should remain robust in 2020. At the same time, sustained low interest rates — central banks globally appear committed to maintaining easy monetary policy — should allow ADSK stock to sustain its rich valuation (nearly 70-times forward earnings).

About Autodesk.....

Autodesk, Inc operates as design software and services company worldwide. The company offers AutoCAD, a professional design, drafting, detailing, and visualization software; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution for civil engineering, including land development, transportation, and environmental projects; AutoCAD LT, a professional drafting and detailing software; BIM 360, a construction management cloud-based software; computer-aided manufacturing (CAM) software for computer numeric control machining, inspection, and modelling for manufacturing; Fusion 360, a 3D CAD, CAM, and computer-aided engineering tool; and Industry Collections software products for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment industries.

Earnings.....

Autodesk has posted seven consecutive quarters of triple-digit growth in earnings per share on an absolute value basis. It has reported eight straight quarters of double-digit gains in sales.

Autodesk is profiting from its shift to cloud computing and software-as-a-service from licensed software sales.

However, its guidance for the current quarter was lighter than Wall Street forecast. Autodesk expects to earn 89 cents a share on sales of $887.5 million in its fiscal fourth quarter ending Jan. 31. That's based on the midpoint of its outlook. Wall Street was modeling Autodesk earnings of 92 cents a share on sales of $897 million. In the year-earlier period, Autodesk earned 46 cents a share on sales of $737 million.

Influencing Factors.....

In 2020, Autodesk’s growth trends will remain robust as the company benefits from a rise in enterprise software spending trends globally. In 2019, enterprises stopped spending big on technology related investments amid rising geopolitical uncertainties. Now those uncertainties are fading. And as they do, 2020 corporate technology spending trends will materially improve, creating a rising tide to lift all enterprise software stocks.

The company has established dominance in the AEC vertical, and demand for software services in that vertical will only grow over time. At the same time, the company features an extremely attractive financial profile that includes subscription revenues with 90%-plus gross margins, leaving a ton of room for positive operating leverage and huge profit growth in the long run.

Autodesk sells its services in subscription packages. That means most of the revenue is recurring and non-volatile. It also means that the revenue is very high margin (Autodesk runs at 90%-plus gross margins). Further, because Autodesk’s solutions are so good, they almost sell themselves, i.e. the company isn’t spending big to drive big revenue growth (operating expenses have been rising at a steady ~10% rate compared to 20%-plus revenue growth).

Analysts’ Response.....

Wells Fargo really likes shares of architecture, engineering, and construction (AEC) software giant Autodesk. They hiked their price target on ADSK stock to a Street-high $240.

Mizuho Securities named Autodesk stock as one of its top picks among software stocks for 2020.

Autodesk was upgraded by analysts at Deutsche Bank from a “hold” rating to a “buy” rating in a report released on Tuesday, last week. The brokerage currently has a $230.00 price objective on the software company’s stock. Deutsche Bank’s price objective would suggest a potential upside of 16.91% from the company’s previous close.

Several equities analysts have recently commented on the company…..

  • Credit Suisse Group lifted their price objective on shares of Autodesk from $185.00 to $210.00 and gave the company an “outperform” rating in a research report on Monday, January 13th.
  • Autodesk had its price target hoisted by research analysts at KeyCorp from $191.00 to $210.00 in a research note issued on Friday, January 10th. The firm presently has an “overweight” rating on the software company’s stock.
  • Finally, Royal Bank of Canada lifted their price objective on shares of Autodesk from $189.00 to $205.00 and gave the company an “outperform” rating in a research report on Monday, January 13th.

Four investment analysts have rated the stock with a sell rating, seven have given a hold rating, twelve have assigned a buy rating and one has assigned a strong buy rating to the stock. Autodesk presently has an average rating of “Hold” and an average price target of $191.18.

Summary…..

All of these favorable dynamics (big revenue growth, huge gross margins and relatively muted expense growth) should persist. As they do, Autodesk will sustain sizable profit growth.

Autodesk has a market cap of $44.01 billion, a P/E ratio of 302.64, a price-to-earnings-growth ratio of 3.58 and a beta of 1.89. Autodesk, Inc. has a 1-year low of $129.70 and a 1-year high of $200.90. The business has a fifty day moving average price of $187.94 and a two-hundred day moving average price of $163.21.


Option Trade – Agilent Technologies Inc. (NYSE:A) Calls

Tuesday, January 28, 2020

** OPTION TRADE: Buy A MAR 20 2020 90.000 CALLS at approximately $2.00.
Sell price is left to your own judgment.

Agilent Technologies Inc. (NYSE:A) is a $28 billion lab-equipment maker.

Its customers use its high-precision tools in any variety of scientific experiments.

Some of those experiments will expand human understanding and result in lucrative new products… while others will be a bust.

Agilent profits either way. Its sales topped $5.1 billion last year, a 5% increase from 2018.

Agilent shares have soared roughly 150% over the past four years, and they just hit new all-time highs. As scientific progress continues, lab equipment will remain in high demand.

About Agilent Technologies.....

Agilent Technologies is a global leader in life sciences, diagnostics and applied chemical markets. Now in its 20th year as an independent company delivering insight and innovation toward improving the quality of life, Agilent instruments, software, services, solutions, and people provide trusted answers to customers' most challenging questions. The company generated revenue of $5.16 billion in fiscal 2019 and employs 16,300 people worldwide.

Influencing Factors.....

Recently Agilent Technologies introduced a new product designed to address key challenges that laboratories encounter when preparing DNA sequencing libraries for their research. The new Agilent SureSelect XT HS2 DNA Kit represents the state-of-the-art in library preparation and target enrichment, offering researchers a complete solution that allows them to choose workflow options that best suit their needs.

"The release of SureSelect XT HS2 demonstrates Agilent’s decade long commitment to innovation of our SureSelect brand to ensure that customers have access to the most comprehensive and cutting-edge solutions for NGS library preparation," said Lou Welebob, vice president of Commercial Marketing, Diagnostics and Genomics Group at Agilent. "We continue to evolve in order to satisfy our customer’s unmet needs for cancer and constitutional applications."

Agilent is one of the only vendors in the industry to offer an end-to-end solution for next-generation sequencing, including sample quality control, library preparation, target enrichment, automation, and data analysis.

Earnings.....

Agilent Technologies last posted its quarterly earnings data on Monday, November 25th. The medical research company reported $0.89 EPS for the quarter, topping analysts’ consensus estimates of $0.86 by $0.03. The firm had revenue of $1.37 billion during the quarter, compared to analysts’ expectations of $1.33 billion. Agilent Technologies had a return on equity of 20.13% and a net margin of 20.74%. The firm’s quarterly revenue was up 5.6% compared to the same quarter last year. During the same quarter last year, the business posted $0.81 EPS.

Agilent is expected to issue its next earnings report on Wednesday, February 19th.

Wall Street analysts expect that Agilent Technologies will report earnings per share of $0.81 for the current quarter. Agilent Technologies posted earnings of $0.76 per share in the same quarter last year, which indicates a positive year over year growth rate of 6.6%.

Analysts expect that Agilent Technologies will report full year earnings of $3.41 per share for the current year, with EPS estimates ranging from $3.38 to $3.43. For the next year, analysts forecast that the business will report earnings of $3.78 per share, with EPS estimates ranging from $3.70 to $3.87.

Analysts’ Response.....

Wells Fargo & Co began coverage on Agilent Technologies in a report on Tuesday. They issued an “overweight” rating and a $100.00 price target for the company.

Also, Agilent Technologies had its price target raised by UBS Group from $82.00 to $87.00 in a report issued on Tuesday, November 26th. The brokerage currently has a neutral rating on the medical research company’s stock.

Several equities analysts have recently commented on the company…..

  • Needham & Company LLC began coverage on Agilent Technologies in a report on Friday, January 3rd. They issued a “buy” rating and a $77.00 price target for the company.
  • Citigroup began coverage on shares of Agilent Technologies in a research note published on Monday, January 6th. The brokerage issued a neutral rating and a $85.00 target price on the medical research company’s stock.
  • Stifel Nicolaus began coverage on Agilent Technologies in a report on Thursday, November 14th. They issued a “hold” rating and an $85.00 price target for the company.
  • Finally, Citigroup began coverage on Agilent Technologies in a report on Monday, January 6th. They issued a “neutral” rating and an $85.00 price target for the company.

 Seven equities research analysts have rated the stock with a hold rating and eight have given a buy rating to the company. Agilent Technologies currently has a consensus rating of “Buy” and a consensus target price of $84.57.

Summary…..

Agilent’s 50 day simple moving average is $85.84 and its 200-day simple moving average is $77.00. The firm has a market cap of $27.63 billion, a price-to-earnings ratio of 26.27, and a P/E/G ratio of 2.11 and a beta of 1.42. Agilent Technologies has a one year low of $65.35 and a one year high of $90.64. The company has a current ratio of 1.53, a quick ratio of 1.21 and a debt-to-equity ratio of 0.38.