“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, July 08, 2019

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 – Agnico Eagle Mines Ltd (USA) (NYSE:AEM) Calls

Friday, July 12, 2019

** OPTION TRADE: Buy AEM AUG 16 2019 55.000 CALL at approximately $0.70.

Sell price is left to your own judgment.

 (or, alternatively as requested by some members : Place a pre-determined sell at $1.40.

Also include a protective stop loss of $0.30.)

Gold finally has its shine back. The world's favorite precious metal is sparkling again too. Recently, the price of gold topped $1,400/oz, marking its highest level in more than five years. Gold's move has come with surprising speed as well; it's up nearly 10% over the past month.

 And, Agnico Eagle Mines Ltd (USA) (NYSE:AEM) has established an upward course, and it is more than likely to continue moving in that direction. The goal is that once a stock heads upwards on a fixed path, it will lead to timely and profitable trades - and in this case an options trade.

NOTE: In April we executed a trade on AEM and were able to secure a potential profit of 300%.

Agnico Eagle Mines was given a recent upgrade to a Zacks Rank #1 (Strong Buy). Therefore, the Zacks rating upgrade for Agnico basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.

The upgrade of Agnico to a Zacks Rank #1 positions it in the top 5% of the Zacks-covered stocks in terms of estimate revisions, implying that the stock might move higher in the near term.

Shares of Agnico Eagle Mines have increased 19.27% over the past quarter, and have gained 10.83% in the last year. In comparison, the S&P 500 has only moved 3.29% and 9.96%, respectively.

There are several factors supporting gold movement…..

  • The Fed pivoted after US-China trade war tensions escalated with Donald Trump’s tweet in May, which supported gold. 
  • The US dollar (UUP) weakening on prospects of Fed rate cuts,
  • Geopolitical tensions, and
  • weaker economic numbers.

About Agnico Eagle Mines Limited…..

Agnico Eagle Mines Limited is a gold producer with mining operations in northwestern Quebec, northern Mexico, northern Finland and Nunavut and exploration activities in Canada, Europe, Latin America and the United States. The Company operates through three business units. The Northern Business consists of its operations in Canada and Finland.

Earnings…..

Agnico Eagle Mines last issued its quarterly earnings data on Thursday, April 25th. The company reported C$0.18 earnings per share for the quarter, topping analysts’ consensus estimates of C$0.07 by C$0.11. The company had revenue of C$707.63 million for the quarter, compared to analysts’ expectations of C$682.74 million. Analysts anticipate that Agnico Eagle Mines Ltd will post 0.66 earnings per share for the current year.

Future Earnings…..

Agnico Eagle Mines Limited is expected to earn $0.51 per share for the fiscal year ending December 2019, which represents a year-over-year change of 136.4%.

Analysts have been steadily raising their estimates for Agnico. Over the past three months, the Consensus Estimate for the company has increased 14.6%.

Influencing Factors…..

For AEM, shares are up 0.64% over the past week while the Mining - Gold industry is down 0.52% over the same time period. Shares are looking quite well from a longer time frame too, as the monthly price change of 11.6% compares favorably with the industry's 11.66% performance as well.

AEM's average 20-day trading volume - volume is a useful item in many ways, and the 20-day average establishes a good price-to-volume baseline; a rising stock with above average volume is generally a bullish sign, whereas a declining stock on above average volume is typically bearish. AEM is currently averaging 1,438,893 shares for the last 20 days.

Earnings estimates - Over the past two months, 2 earnings estimates moved higher compared to none lower for the full year. These revisions helped boost AEM's consensus estimate, increasing from $0.51 to $0.54 in the past 60 days. Looking at the next fiscal year, 1 estimate has moved upwards while there have been no downward revisions in the same time period.

Analysts…..

Agnico Eagle Mines had its price target raised by JPMorgan Chase & Co. from C$65.00 to C$68.00 in a report issued on Monday.

Also, Agnico Eagle Mines had its price target lifted by National Bank Financial from C$70.00 to C$87.00 in a research note released on Friday, June 28th. They currently have an outperform rating on the stock.

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

  • CIBC restated a “buy” rating and set a $57.50 target price on shares of Agnico Eagle Mines in a research report on Friday, April 5th.
  • Desjardins restated an “average” rating and set a $63.00 target price on shares of Agnico Eagle Mines in a research report on Wednesday, May 15th.
  • GMP Securities upgraded Agnico Eagle Mines from a “hold” rating to a “buy” rating in a research report on Tuesday, April 23rd.
  • Finally, Raymond James restated an “outperform” rating and set a $56.00 target price on shares of Agnico Eagle Mines in a research report on Monday, April 29th.

Shares of Agnico Eagle Mines Ltd have been given an average recommendation of “Buy” by the seventeen analysts that are currently covering the stock. Four analysts have rated the stock with a hold rating and twelve have issued a buy rating on the company. The average 12-month price objective among brokers that have issued a report on the stock in the last year is $52.11.

Summary…..

AEM has a current ratio of 2.96, a quick ratio of 1.21 and a debt-to-equity ratio of 39.54. The firm has a market capitalization of $15.89 billion and a PE ratio of -46.97. Agnico Eagle Mines Ltd has a 1 year low of C$42.35 and a 1 year high of C$69.13. The business has a 50-day simple moving average of C$62.71.


Option Trade – salesforce.com, inc. (NYSE:CRM) Calls

Thursday, July 11, 2019

** OPTION TRADE: Buy CRM AUG 16 2019 160.000 CALL at approximately $2.90.

Sell price is left to your own judgment.

 (or, alternatively as requested by some members : Place a pre-determined sell at $5.80.

Also include a protective stop loss of $1.20.)

Market experts say artificial intelligence will lead the next wave of economic growth and productivity for at least the next couple of decades. And looking at stocks with “strong buy” ratings is also more likely to have significant upside potential from the current share price.

That is why salesforce.com, inc. (NYSE:CRM) fits this category perfectly!

When cloud computing giant Salesforce.com launched its Einstein Analytics platform back in 2017, everyone was buzzing. “We have more customer data than ever before and we need AI to turn data into something actionable for the business user,” says CRM exec Arijit Sengupta.

Salesforce wants a slice of the fast-growing AI market. CRM found that AI technologies will create more than 800,000 new jobs and add $1.1 trillion to global GDP by 2021.

Cloud-based customer relationship management company salesforce.com, inc. (NYSE:CRM) has been consistently growing its revenue well into the double digits since it went public in 2004. Over that period of time, the stock has returned an astonishing 3,300%. Though the company now has a market cap of $113 billion, there's still plenty of room for further growth.

That's because the software provider is still growing at a better-than-20%-per-year rate. Through in-house development and strategic acquisition of smaller peers, Salesforce is still very much in growth mode. During the third-quarter 2018 earnings report, the co-CEO and founder of enterprise software company Salesforce, Marc Benioff, said he sees years of expansion ahead as the economy -- especially the digital economy -- continues to evolve and changes how businesses operate. That plays right into the hand of Salesforce, one of the pioneers of cloud-based services and customer-centric, data-driven software.

And, software investors will enjoy another year of solid returns, according to Wells Fargo Securities software analyst Philip Winslow.

"We believe that organizations view software as a revenue-driving asset that is essential to retaining customers, making the sector less susceptible to volatile changes in IT spending," Winslow wrote. "We believe that the software sector offers an attractive valuation profile relative to the sector's outlook for sustained (longer duration) profitability and growth (higher growth)."

The analyst noted how software once created can be sold an unlimited number of times at nearly no incremental cost. He also cited how software stocks have outperformed the S&P 500 80% of the years since 2009 by 14 percent points on average. It also beat the market significantly last year.

Winslow estimates the software industry will grow at 8% annually from 2018 to 2022, which is more than double the rate of overall technology spending.

And, the analyst has a $192 price target for Salesforce.com stock, representing about 20% upside to the current price.

"We expect Salesforce to benefit from adoption trends in artificial intelligence (AI), cloud, social, and mobile, positioning the company as the leading customer-centric, integrated front-office suite because of its ability to provide an end-to-end solution across [customer-relationship management]," he wrote.

About salesforce.com…..

Salesforce is a titan in the cloud software market. The $110 billion behemoth is the undisputed leader in customer relationship management software, with a market share that's more than that of its three closest rivals combined.

Salesforce has long been at the forefront of the big-data revolution. The company long ago recognized the capacity of artificial intelligence (AI) to help businesses harvest actionable insights from all forms of data. Salesforce has used acquisitions to bolster its AI arsenal, and it now offers some of the most advanced AI solutions among enterprise software providers.

"Customers, no matter what industry, no matter what geography, no matter what size company, want insights," said co-CEO Keith Block on Salesforce's second-quarter earnings call . Salesforce has positioned itself as perhaps the premier supplier of this information; the company delivers more than 4 billion AI-powered predictions to its customers every day. In turn, Salesforce's AI leadership is helping it gain share in an enterprise application-software market that's projected to grow to more than $275 billion by 2022.

Earnings…..

salesforce.com delivered impressive first-quarter fiscal 2020 non-GAAP earnings of 93 cents per share, comprehensively exceeding the Consensus Estimate of 61 cents and improving from the year-ago quarter's figure of 74 cents.

Management mentioned that mark-to-market adjustments of the company's strategic investments boosted earnings by 27 cents per share.

Revenues of $3.74 billion increased 24% year over year and surpassed the Consensus Estimate of $3.68 billion. Moreover, the top line improved 26% at constant currency (cc).

Future Earnings…..

salesforce.com is scheduled to announce its next earnings results on Wednesday, September 4th.

Wall Street brokerages predict that salesforce.com will post sales of $3.95 billion for the current fiscal quarter. salesforce.com reported sales of $3.28 billion in the same quarter last year, which indicates a positive year over year growth rate of 20.4%.

For fiscal 2020, revenues are predicted between $16.1 billion and $16.25 billion, marking 21-22% growth year over year. The company expects Salesforce.org to contribute approximately $150-$200 million in revenues in fiscal 2020.

However, strengthening of U.S. dollar relatively to GBP and the euro is likely to keep revenues as well as operating margins under pressure. The company anticipates more than $200 million of foreign exchange headwinds in the full fiscal.

However, the company raised its full-year earnings per share guidance to the range of $2.88-$2.90 per share from $2.54-$2.56 envisioned earlier. Operating cash flow is still forecast to increase 20-21% year over year.

Coming to fiscal second quarter, Salesforce.org is likely to generate approximately $40 million to $50 million revenues. Revenues are guided between $3.94 billion and $3.95 billion.

However, non-GAAP diluted earnings per share are anticipated in the range of 46-47 cents for the fiscal second quarter. Transaction expenses associated with the consolidation of Salesforce.org is an overhang.

Acquisition of Tableau Software…..

Salesforce.com, inc. has inked a definitive agreement to acquire Tableau Software Inc (NYSE: DATA).

The rationale behind Tableau Software's tie-up with salesforce.com is simple: Tableau's "very broad and deep" analytics platform can be coupled with Salesforce's machine learning and artificial intelligence technologies,” said Tableau CEO Adam Selipsky.

“We are bringing together the world’s #1 CRM with the #1 analytics platform. Tableau helps people see and understand data and Salesforce helps people engage and understand customers. It’s truly the best of both worlds for our customers–bringing together two critical platforms that every customer needs to understand their world,” said Marc Benioff, chairman and co-CEO, Salesforce, in a statement.

Tableau agreed to sell itself to Salesforce for more than $15 billion, and its engineers can't "wait to pop the hood" to discover what it can start selling to its customer base, Selipsky said.

The relationship is a two-way street, as Tableau boasts many assets that Salesforce can start cross-selling to its customer base, the CEO said.

Once Salesforce's acquisition of Tableau is finalized, it will create "magic" with a "ton of possibilities," Selipsky said. Some of the client overlaps between the two companies include some of the largest financial institutions, media giants and airlines, he said.

"Salesforce has many, many thousands of field reps around the world," the CEO said. "I can't wait for them to be passing leads from either joint customers or new customers into our field."

Tableau will run independently within Salesforce, and Selipsky said he will remain CEO of the company. His entire management and executive team will stay, he said, adding that being under Salesforce's umbrella will create the "best of both worlds."

Salesforce is one of the most promising stocks highlighted by Goldman Sachs chief US equity strategist David Kostin. In May the company announced that it will snap up Tableau Software (DATA)  in a massive $15.7 billion deal. "We are bringing together the world's #1 CRM with the #1 analytics platform," explained Salesforce CEO Marc Benioff. "Tableau helps people see and understand data, and Salesforce helps people engage and understand customers."

The deal certainly has the Street’s seal of approval. Five-star KeyBanc analyst Brent Bracelin notes that data has increasing value as enterprises adopt cloud and digital best practices, yet less than 90% of the $41B data management and analytics software market is still made up of traditional data software tools designed 30+ years ago. Now with DATA under its belt, Salesforce can move to capitalize on this lucrative data modernization opportunity.

“We raised numbers on Tableau Software last week and remain bullish on the prospects for 30%+ ARR growth under Salesforce that could further elevate Tableau from a pioneer of self-service visualization into a broader analytics platform that can replace legacy business insider tools” writes Bracelin. He reiterated his buy rating and $180 price target in June, while describing Salesforce as a core, large-cap growth holding.

Influencing Factors…..

Of all Salesforce's acquisitions, MuleSoft may have been the most important until now. Salesforce paid $6.5 billion in 2018 to acquire MuleSoft's best-in-class data integration technology, which helps companies bring together massive amounts of data from many different sources. Less than a year later, it's already beginning to look like MuleSoft may have been an incredible bargain.

MuleSoft is helping Salesforce win new business at a rapid clip during the company's Q2 call: "As more and more companies connect everything and everyone, they're realizing that integration is vital to their success and to their digital transformation, and now they're turning to Salesforce MuleSoft, the No. 1 integration cloud, to do it."

Together with Salesforce's highly regarded AI capabilities, MuleSoft's data integration solutions make the combined company extremely well-positioned to profit from the big-data boom.

Analysts…..

salesforce.com‘s stock had its “buy” rating reissued by analysts at Royal Bank of Canada in a research report issued to clients and investors on Monday, June 17th. They presently have a $181.00 price objective on the CRM provider’s stock. Royal Bank of Canada’s price objective would suggest a potential upside of 17.44% from the company’s current price.

Also, ValuEngine upgraded shares of salesforce.com from a hold rating to a buy rating in a research note published on Tuesday, July 2nd.

As well, UBS Group set a $190.00 price target on salesforce.com in a report released on Tuesday, June 11th. The brokerage currently has a buy rating on the CRM provider’s stock.

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

  • Wedbush restated an “outperform” rating and set a $192.00 price target on shares of salesforce.com in a research note on Friday, May 31st.
  • Nomura reaffirmed a “buy” rating on shares of salesforce.com in a report on Tuesday, May 28th. BMO Capital Markets reaffirmed an “outperform” rating and set a $185.00 target price (up previously from $175.00) on shares of salesforce.com in a report on Tuesday, March 5th.
  • Canaccord Genuity reaffirmed a “buy” rating and set a $175.00 target price (up previously from $165.00) on shares of salesforce.com in a report on Wednesday, March 6th.
  • Bank of America reissued a “buy” rating and set a $200.00 price objective on shares of salesforce.com in a research note on Monday, May 20th.
  • JPMorgan Chase & Co. reaffirmed a “buy” rating and set a $180.00 price target on shares of salesforce.com in a research report on Wednesday, April 17th.
  • Monness Crespi & Hardt reaffirmed a “buy” rating and set a $200.00 price target (up from $195.00) on shares of salesforce.com in a research report on Wednesday, June 5th.
  • Finally, SunTrust Banks upped their target price on shares of salesforce.com to $189.00 and gave the stock a “buy” rating in a research note on Tuesday, June 11th.

Three equities research analysts have rated the stock with a hold rating, thirty-seven have issued a buy rating and one has given a strong buy rating to the company’s stock. Meanwhile the average analyst price target of $183 indicates upside potential of 23% from the current share price.

Summary…..

The company is benefiting from a robust demand environment as customers are undergoing a major digital transformation. The rapid adoption of the company's cloud-based solutions led to better-than-expected results. Moreover, the acquisition of Mulesoft contributed $170 million to revenues in the first quarter.

CRM stock traded up $2.32 on Wednesday, hitting $156.27. The company’s stock had a trading volume of 4,412,048 shares, compared to its average volume of 5,703,059. The company has a current ratio of 0.96, a quick ratio of 0.96 and a debt-to-equity ratio of 0.34. The stock has a market capitalization of $119.95 billion, a PE ratio of 107.77, a price-to-earnings-growth ratio of 5.72 and a beta of 1.29. The firm’s 50 day simple moving average is $153.58. salesforce.com, inc. has a 1 year low of $113.60 and a 1 year high of $167.56.


Option Trade – Darden Restaurants, Inc. (NYSE:DRI) Calls

Wednesday, July 10, 2019

** OPTION TRADE: Buy DRI AUG 16 2019 125.000 CALL at approximately $1.95.

Sell price is left to your own judgment.

 (or, alternatively as requested by some members : Place a pre-determined sell at $3.90.

Also include a protective stop loss of $0.80.)

 Olive Garden parent Darden Restaurants, Inc. (NYSE:DRI), which is a full service restaurant company based in Orlando, Fla, has been a long-term winner on the charts, and is already up close to 25.4% so far this year.

Although the stock suffered an initial post-earnings dip in late June, the stock quickly recovered with help from the rising 10-month moving average. The equity then broke out above a trendline connecting lower highs since mid-May, which went on to act as support for the shares during a late-June pullback.

Now looks to be the perfect time for this options trade on DRI.

The largest business segments of Darden Restaurants' network are performing well.

This performance offsets the poorly-performing ‘Other Business’ segment, which includes the newly-acquired Cheddar’s Scratch Kitchen brand.

While Cheddar’s improves guest counts and profits amid integration, the Olive Garden brand is slowly making inroads into the delivery business.

One trader’s comments on DRI…..

“Darden Restaurants, Inc. has best-in-class operations when it comes to the restaurant industry.”

“Casual dining is on fire. Olive Garden, Longhorn -- they're doing really well there. They're really working on making the customer experience a lot better and they're simplifying the menu, so everything looks good when it comes to Darden.”

About DRI…..

Ranging from casual dining to fine dining, DRI’s diverse portfolio of brands include Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Bahama Breeze, Seasons 52, and Eddie V’s Prime Seafood. Having followed an acquisition-driven growth, DRI’s only internally-developed brands are Olive Garden, Bahama Breeze and Seasons 52.

Olive Garden, the largest full-service Italian restaurant in the US generates more than half of DRI’s total sales.

LongHorn Steakhouse, bringing in a little over a fifth of the company’s total sales, mainly operates in the Eastern US.

The Capital Grille and Eddie V’s make up DRI’s most profitable fine-dining segment which contributes c. 7.1% of its total sales.

The Other Business segment consists of the remaining brands and forms nearly a fifth of DRI’s top-line.

Earnings…..

Darden Restaurants (DRI) reported an EPS of $1.67 for the fourth quarter late June. Removing unusual items, the company’s adjusted EPS was $1.76 higher than analysts’ expectation of $1.73. Darden’s adjusted EPS rose 26.6% year-over-year. The revenue growth, expanded EBIT margin, lower effective tax rate, and share repurchases drove the company’s adjusted EPS during the fourth quarter.

For the fourth quarter, Darden’s effective tax rate was 5.5%—compared to 20.4% in the fourth quarter of 2018. Excising stock options and mark-to-market hedges yielded better-than-expected benefits and lowered the company’s effective tax rate. Moving to share repurchases, Darden repurchased 1.9 million shares for $208 million last year, which includes 0.4 million shares for $42 million in the previous quarter alone. Due to these repurchases, the company’s average number of common shares outstanding fell from $125.5 million in the fourth quarter of 2018 to $124.9 million shares.

Future Earnings…..

Darden Restaurants’ management expects its revenues to rise 5.3%–6.3% in fiscal 2020. The extra week will likely contribute 2% of the revenues. The company expects its same-store sales to rise 1%–2% during fiscal 2020. The company plans to open 50 gross or 44 net new restaurants this year.

Meanwhile, analysts expect Darden to post revenues of $9.09 billion in fiscal 2019—a rise of 6.8% from $8.51 billion in fiscal 2018. An extra week of operation, positive SSSG (same-store sales growth), and the net addition of new restaurants will likely drive the company’s revenues in fiscal 2020.

Before Darden reported its fourth-quarter earnings, analysts expected an EPS of $6.46 for fiscal 2020. However, the company’s management provided an EPS guidance of $6.30–$6.45, which was lower than analysts’ expectations. Currently, analysts expect Darden to report an adjusted EPS of $6.43, which implies a rise of 10.5% from $5.82 in fiscal 2018.

The increased revenues, expanded EBIT margin, and share repurchases will likely drive the company’s EPS in fiscal 2020. By the end of fiscal 2019, the company had ~$304 million available under its share repurchase program.

Equities research analysts at Oppenheimer boosted their Q1 2020 earnings per share (EPS) estimates for Darden Restaurants in a research note issued on Thursday, June 20th. Oppenheimer analyst B. Bittner now expects that the restaurant operator will earn $1.40 per share for the quarter, up from their previous estimate of $1.39. Oppenheimer also issued estimates for Darden Restaurants’ Q4 2020 earnings at $1.95 EPS, FY2020 earnings at $6.38 EPS and FY2021 earnings at $6.80 EPS.

Areas of Concern…..

Cheddar’s Scratch Kitchen, a casual diner acquired by DRI in FY17 for USD799 million, forming c. 9.0% of its total restaurant network, is dragging down the overall performance of the segment as its same-restaurant sales decline further.

It is worth noting that LongHorn Steakhouse, another acquisition DRI made in FY07, yielded positive same-restaurant sales only in FY12. With Cheddar’s witnessing rising guest counts in FY19 Q4, the company’s integration efforts there are bearing fruit.

Influencing Factors…..

Darden continues to focus on flawless execution, growing its off-premise sales, and everyday value offerings to drive its SSSG.

Olive Garden has lowered its minimum amount for delivery from $100 to $75. The company relaxed the 24-hour lead time previously required to order ahead of the delivery to 5:00 PM the day before. Darden opened a new prototype restaurant in Orlando, Florida. The restaurant has a dedicated area for the To-Go business, which caters to online sales. The company’s management said that a restaurant with a separate Go-To area could boost sales by $1.0 million. LongHorn Steakhouse already has a separate takeout area in 40% of its restaurants.

Analysts…..

Deutsche Bank started coverage on shares of Darden Restaurants in a research note on Friday, June 28th. They issued a “hold” rating and a $123.00 price target on the stock.

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

  • Zacks Investment Research downgraded shares of Darden Restaurants from a “buy” rating to a “hold” rating and set a $125.00 target price on the stock. in a research note on Wednesday, June 12th.
  • SunTrust Banks lifted their target price on shares of Darden Restaurants to $141.00 and gave the stock a “buy” rating in a research note on Friday, March 22nd.
  • Wells Fargo & Co reduced their target price on shares of Darden Restaurants from $120.00 to $117.00 and set a “market perform” rating on the stock in a research note on Tuesday, June 11th.
  • Finally, Citigroup reduced their target price on shares of Darden Restaurants from $146.00 to $144.00 and set a “buy” rating on the stock in a research note on Friday, June 28th.

One analyst has rated the stock with a sell rating, eight have assigned a hold rating and eighteen have issued a buy rating to the company’s stock. The company presently has an average rating of “Buy” and an average price target of $130.39.

Summary

Despite recent acquisitions and ensuing integration, DRI has successfully grown its restaurant-level margins and operating margins backed by rising profitability of Olive Garden and LongHorn Steakhouse brands. Oliver Garden, which together with LongHorn Steakhouse, makes up more than two-thirds of DRI’s top-line will see further improvements to margins amid ongoing process simplification efforts there.

With a history of acquisition-led growth, DRI currently has strong cash flows and little leverage. Therefore, amid expectations of cuts to the Fed funds rate, the company could capitalize on a lower cost of debt environment to make further acquisitions.

The company has a quick ratio of 0.46, a current ratio of 0.61 and a debt-to-equity ratio of 0.39. Darden Restaurants, Inc. has a one year low of $95.83 and a one year high of $125.33. The stock’s 50 day moving average is $120.29. The firm has a market capitalization of $15.37 billion, a price-to-earnings ratio of 21.06, and a price-to-earnings-growth ratio of 1.92 and a beta of 0.32.


Option Trade – Skyworks Solutions Inc (NASDAQ: SWKS) Puts

Monday, July 08, 2019

** OPTION TRADE: Buy SWKS AUG 16 2019 75.000 PUT at approximately $1.85.

Sell price is left to your own judgment.

 (or, alternatively as requested by some members : Place a pre-determined sell at $3.70.

Also include a protective stop loss of $0.75.)

Skyworks Solutions Inc (NASDAQ: SWKS), a smartphone chip supplier, has been pounded mercilessly with its shares falling 24.4% lower in May 2019. The maker of communications-oriented microchips saw the drop starting with a solid but uninspiring earnings report, followed by geopolitical drama as major customer Huawei suddenly became a dead revenue stream until further notice.

On May 16, 2019, the Bureau of Industry and Security (BIS) added Huawei Technologies Co., Ltd. and 68 of its affiliates to the “Entity List” maintained by U.S. Department of Commerce.

This decision bars Skyworks from supplying products to Huawei and its affiliates, which compelled the company to trim revenue guidance.

Huawei is one of the most prominent customers of Skyworks’s mobile and wireless infrastructure solutions. In the first six months of fiscal 2019, the company notes that Huawei and its affiliates contributed approximately 15% of total revenues.

Moving forward…..

Skyworks recently lowered third-quarter fiscal 2019 outlook. The company now anticipates third-quarter fiscal 2019 revenues to be in the band of $755 million to $775 million (mid-point of $765 million), down from its prior range of $815-$835 million (mid-point of $825 million). It suggests a decline of 7.3% considering the mid-point.

Non-GAAP earnings per share have been forecast to be $1.34 per share at the mid-point, down from the previous guidance of $1.50 per share.

Areas of Concern…..

Skyworks reported mixed second-quarter results, where the bottom line surpassed the Consensus Estimate but the top line missed the same. The near-term softness in Chinese market remains a headwind. Also, unit decline across mobile business impacted the second-quarter results.

A saturated consumer electronic market, particularly the smartphone market that is sluggish, is likely to hinder growth prospects of the industry which Skyworks belongs to. Additionally, volatility in foreign exchange, primarily owing to current macro-economic scenario and headwinds in the emerging markets, does not bode well for the industry participants.

Also, the ongoing trade war between the United States and China has created a volatile environment that is not conducive for investments. Notably, the industry participants generate a significant portion of their revenues from China. As the direct revenue sources are now under the radar of plausible tariffs, concern regarding the prospects of the industry has increased in recent times.

Consequently, the company has been witnessing downward revisions of late. The Consensus Estimate for the company’s earnings in 2019 has declined by 43 cents to $6.19 per share in the past 30 days.

Further, the company faces stiff competition from the likes of Broadcom and Qorvo, which exposes it to significant pricing pressures. This is likely to hamper the second-quarter results.

Overdependence on Apple for revenue generation remains a woe.

Skyworks saw a significant increase in short interest in May. As of May 31st, there was short interest totalling 5,856,000 shares, an increase of 5.4% from the April 30th total of 5,554,100 shares. Currently, 3.4% of the company’s shares are short sold. Based on an average trading volume of 2,060,000 shares, the days-to-cover ratio is currently 2.8 days.

Future Earnings…..

Skyworks is expected to announce its next earnings results on Thursday, July 18th.

Brokerages predict that Skyworks Solutions will report earnings of $1.34 per share for the current quarter. Skyworks Solutions posted earnings of $1.64 per share during the same quarter last year, which would suggest a negative year over year growth rate of 18.3%.

Analysts expect that Skyworks Solutions will report full-year earnings of $6.19 per share for the current fiscal year, with EPS estimates ranging from $6.06 to $6.29. For the next fiscal year, analysts expect that the business will report earnings of $6.46 per share, with EPS estimates ranging from $6.00 to $7.07.

Also, brokerages predict that Skyworks Solutions will post sales of $765.94 million for the current quarter. Skyworks Solutions posted sales of $894.30 million during the same quarter last year, which would indicate a negative year over year growth rate of 14.4%.

On average, analysts expect that Skyworks Solutions will report full year sales of $3.39 billion for the current financial year, with estimates ranging from $3.34 billion to $3.44 billion. For the next financial year, analysts expect that the business will report sales of $3.44 billion, with estimates ranging from $3.27 billion to $3.65 billion.

Analysts…..

Barclays dropped their price objective on Skyworks Solutions from $95.00 to $75.00 and set an “overweight” rating on the stock in a research report on Wednesday, June 5th.

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

  • Zacks Investment Research lowered Skyworks Solutions from a “hold” rating to a “sell” rating in a research report on Monday, March 25th.
  • Mizuho restated a “hold” rating and set an $89.00 price target on shares of Skyworks Solutions in a research report on Friday, May 3rd.
  • Finally, Macquarie lowered Skyworks Solutions from an “outperform” rating to a “neutral” rating and set a $92.80 price objective on the stock in a research report on Wednesday, April 17th.

Three analysts have rated the stock with a sell rating, seventeen have issued a hold rating and twelve have issued a buy rating to the company. The stock currently has a consensus rating of “Hold” and an average target price of $86.39.

Insider News….

Director David J. Aldrich sold 5,000 shares of the stock in a transaction dated Friday, May 10th. The shares were sold at an average price of $83.13, for a total transaction of $415,650.00.

Also, Director David J. Aldrich sold 10,000 shares of the stock in a transaction dated Friday, April 5th. The stock was sold at an average price of $85.74, for a total transaction of $857,400.00.

Summary…..

Skyworks Solutions has a 12-month low of $60.12 and a 12-month high of $103.95. The firm has a 50-day moving average price of $72.32. The stock has a market capitalization of $14.15 billion, a price-to-earnings ratio of 12.19, and a P/E/G ratio of 1.52 and a beta of 0.98.