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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ALSO "Trading Capital Management"
Option Trade – Nuance Communications Inc. (NASDAQ:NUAN) Calls
Friday, November 13, 2020
** OPTION TRADE: Buy NUAN JAN 15 2021 35.000 CALLS at approximately $2.20. (Max. $2.40)
(for those members requiring further guidance.....
Place a pre-determined sell at $4.40.
Include a protective stop loss of $0.90.)
The leading provider of speech and imaging solutions for businesses and consumers globally Nuance Communications Inc. (NASDAQ:NUAN), sees its solutions being utilized throughout the healthcare, telecom, financial services and government sectors.
Nuance Communications experienced an incredibly steady and impressive rally off of its March low through mid-October. The stock rallied over 160% during that stretch and the biggest drawdown during that time was 10.8%.
Nuance is an artificial intelligence company whose products allow communication between humans and computers. Using natural language technology the software helps companies boost productivity and security. The company was originally founded in 1992 as ScanSoft, but the name was changed to Nuance Communications in 2005.
The company is set to report fiscal fourth quarter earnings results on November 18, after the closing bell and analysts expect the company to earn $0.16 per share for the quarter. The consensus estimate for revenue is $345.55 million.
Unfortunately, both the EPS and the revenue estimates are lower than what the company reported in Q4 2019. Last year the company reported EPS of $0.34 on revenue of $489.34 million. This means analysts are expecting earnings to drop by 52.9% and revenue is expected to drop by 29.4%.
That isn’t really what we want to hear after such a big rally in the stock. The company has seen earnings decline by an average of 4% per year over the last three years and they dropped 10% in Q3 when compared to the previous year. Revenue has been declining by 8% per year over the last three years and it was also down 10% in the third quarter.
However, for the last reported quarter, it was expected that Nuance Communications would post earnings of $0.12 per share when it actually produced earnings of $0.18, delivering a surprise of +50%.
Over the last four quarters, the company has beaten consensus EPS estimates four times.
Analysts do see things getting better in 2021 with earnings expected to grow by 6.1% and revenue is expected to grow by 4%.
One area where Nuance does fare better is in its management efficiency measurements. The company’s return on equity is 13.5% and that is in the average range. The profit margin is 19.1% and that is slightly above average.
When looking at Nuance we're not talking about the basic personal assistants like Siri or Alexa, but rather more sophisticated AI that can be utilized by large corporations like hospitals, banks, telecommunications, retail, and the government.
Nuance offers customers cutting-edge solutions like high accuracy speech recognition, natural language understanding capabilities, dialog and information management, biometric speaker authentication, and text-to-speech.
Without getting too deep into the details, suffice it to say that Nuance's tech is used by police stations, hospitals, banks, telecommunications companies, automakers and more. Simply put, the stakes are high for Nuance's customers. And if you're going to use a technology like speech recognition to replace a human being, you better get it right...
Nuance Communications had its target price raised by equities research analysts at SVB Leerink from $33.00 to $38.00 in a research note issued on Friday. The firm presently has an "outperform" rating on the software maker's stock. SVB Leerink's target price points to a potential upside of 9.83% from the company's current price.
Several other research analysts have commented on NUAN.....
One analyst has rated the stock with a sell rating, three have assigned a hold rating, six have assigned a buy rating and one has issued a strong buy rating to the company. Nuance Communications presently has a consensus rating of "Buy" and an average target price of $33.57.
Shares of Nuance Communications stock will open at $34.60 on Friday. The firm has a market capitalization of $9.77 billion, a price-to-earnings ratio of 62.91, and a PEG ratio of 13.39 and a beta of 1.02. Nuance Communications has a fifty-two week low of $13.51 and a fifty-two week high of $36.35. The company has a debt-to-equity ratio of 1.33, a quick ratio of 1.28 and a current ratio of 1.28. The stock has a 50 day moving average of $33.61 and a 200 day moving average of $27.65.
Option Trade – Farfetch Ltd (NYSE: FTCH) Calls
Wednesday, November 11, 2020
** OPTION TRADE: Buy FTCH JAN 15 2021 45.000 CALLS at approximately $3.75. (Max. $4.40)
(for those members requiring further guidance.....
Place a pre-determined sell at $7.50.
Include a protective stop loss of $1.50.)
Last Thursday Farfetch Ltd (NYSE: FTCH), the leading digital sales platform for the fashion industry, entered into a new joint partnership with Richemont, which owns luxury e-commerce competitor Net-a-Porter, and the Chinese e-commerce giant Alibaba. Farfetch will have an online store on both of Alibaba’s Tmall luxury platforms, Luxury Pavilion and Luxury Soho, while Alibaba and Richemont will jointly invest $600 million in Farfetch, taking a combined 25% stake in Farfetch’s Chinese ventures.
It’s a major move for all parties involved, significantly expanding Farfetch’s reach outside of the U.S. and Europe, adding potentially hundreds of new brands to Tmall’s platform through Farfetch and giving Richemont yet another stronghold on luxury e-commerce compared to its main rivals LVMH and Kering. But also impacted will be the hundreds of brands and boutiques that sell through Farfetch and will now have access to the incredibly lucrative, and notoriously difficult to reach, Chinese market.
China has strict laws about how non-Chinese businesses are allowed to operate in the country, and for many smaller brands, the barriers are too high to clear. The same rules apply whether businesses are opening a physical store in China or only selling online.
“The bar to sell in China is quite high for brands on their own,” said Christina Fontana, Alibaba’s fashion and luxury director for Europe. “Setting up a legal entity in China is time-consuming and difficult. This is one of the reasons we started partnerships with marketplaces like Net-a-Porter and Farfetch. The brands that sell on those platforms now also have a presence in China.”
Alibaba and Richemont will invest $300 million apiece in Farfetch. The investment will be through the purchase of 0% convertible senior notes due 2030 issued by Farfetch. Alibaba and Richemont may require Farfetch to repurchase all or some of the notes on June 30, 2026 at full price.
Alibaba and Richemont will also each invest $250 million in a new joint venture, Farfetch China, taking a combined 25% stake. The two companies will also have the option to take another combined 24% stake in the venture after the third year.
These investments are expected to close during the first half of 2021.
Farfetch Ltd. engages in the retail of fashion and luxury goods. It offers womenswear, menswear, kidswear, vintage, fine watches, and fine jewelry. The company was founded by José Manuel Ferreira Neves in 2007 and launched in 2008 and is headquartered in London, the United Kingdom.
Shares of the luxury e-commerce retailer soared 12.4% in Friday trading and were up another 3.3% in Monday trading after it announced the partnership with Alibaba Group Holding Ltd. and Cie. Financière Richemont S.A. that includes an expansion in the Chinese market and a $600 million investment.
However, the shares pulled back yesterday, along with the rest of the market, but pre-market are on the way back up!
Richemont labels include Cartier, watchmaker Piaget and fashion brand Chloé.
It was previously reported that an Alibaba investment in Farfetch would be coming.
Farfetch will launch shopping channels on Tmall Luxury Pavilion, Tmall Global and Luxury Soho, reaching 757 million consumers.
Farfetch carries styles from more than 3,000 small and independent brands, and more than 700 independent boutiques. Accessing the Chinese market is becoming a major priority across the luxury industry, as it’s the only world market expected to grow this year. It has emerged from the pandemic mostly intact, while many other countries are still dealing with the dangers of Covid-19.
In September, Prada CEO Patrizio Bertelli said the company’s sales jumped in China by 66% in July, while its sales in the rest of the world were down or grew by a small amount. In July, LVMH CEO Bernard Arnault said the company’s sales in China have doubled since March. Alibaba has been the one of the most essential gateways for luxury brands. Its on-boarded 50 new luxury brands since March, nearly double the rate at which new brands were joining pre-pandemic, Fontana said.
Coral Chung, co-founder of handbag brand Senreve, called the partnership between Farfetch very exciting.
“We’re really focused on expanding in China both online and offline,” Chung said. “We only just launched on Tmall, and we had a pop-up in Shanghai at the Kerry Center [in late October]. Our growth has been tremendous in China, growing 10X year-over-year.”
Farfetch CEO Jose Neves said in a press statement that the partnership is part of the larger shift in the luxury industry away from brick-and-mortar and toward both e-commerce and China.
Farfetch will have the immediate benefit of extending its reach to Alibaba’s 757 million consumers. The two companies will also form a steering group for the LNR initiative, alongside Richemont chairman Johann Rupert and Artemis chairman François-Henri Pinault, who also is chairman and ceo of Kering, who will act as founding members.
The timing for this initiative, perhaps, couldn’t be better. The coronavirus pandemic has created a roiling 2020 for the luxury sector, making technologies and retail platforms geared specifically for this industry into essential tools. While this scenario didn’t drive Farfetch’s investment or partnership plans, it did create a sense of urgency, Neves admitted.
“The time when brands need access to that luxury customer, who is no longer traveling, is now,” he said. “The time when brands need to have fully connected stores, and really maximize the visibility of their inventory and the quality of the online and offline experience, is really now.”
Option Trade – Aphria Inc (NYSE: APHA) (TSE: APHA) Calls
Tuesday, November 10, 2020
** OPTION TRADE: Buy APHA JAN 15 2021 6.000 CALLS at approximately $0.70. (Max. $0.90)
(for those members requiring further guidance.....
Place a pre-determined sell at $1.40.
Include a protective stop loss of $N/A.)
U.S. cannabis market may be worth upwards of $100 billion -- when including derivative products such as cannabis-based cosmetics, creams, etc. That figure dwarfs the market opportunity presented by Canada and even the majority of other potential western markets in Europe.
And, Aphria Inc (NYSE: APHA) (TSE: APHA) after all, would almost certainly benefit in a big way from a change in the legal status of cannabis within the United States.
Now, cannabis stocks have enjoyed a third consecutive day of big gains amid expectations that Joe Biden will lead a reform effort that will spark investment in the sector. "While Tuesday night's election did not clearly show who America thinks should lead the nation, it did make clear that we are united on replacing our country's archaic cannabis laws," said the Cannabis Consumer Policy Council. Marijuana would be decriminalized at a federal level in the United States under a Biden administration, but efforts toward full legalization may also not be off the table.
These catalysts should continue to push the stock price upwards.
Aphria Inc. cultivates, processes, produces, markets, distributes, and sells medical cannabis in Canada and internationally.
The company offers pharmaceutical-grade medical cannabis, adult-use cannabis, and cannabis-derived extracts and derivative cannabis products under the Solei, RIFF, Good Supply, Aphria, P'tite Pof, and Broken Coast brands. It serves patients and consumers through distributors and online. The company is headquartered in Leamington, Canada.
Sales of legalized cannabis surpassed black market revenue for the first time in Canada during Q3 2020 this summer. The growing competitiveness of legal producers means they will be able to convert consumers from an illicit market that is worth up to CA$7 billion.
Changing Cannabis Law.....
Aphria and other pot stocks traded wildly last week after Joe Biden’s win in the U.S. presidential election was seen as favorable to the sector.
Biden and his camp have made decriminalizing marijuana on a federal level a focal point of the Democrat's presidential campaign, in contrast to President Donald Trump.
Voters in New Jersey and Arizona passed measures last week that legalized recreational marijuana for adults age 21 and older. New Jersey is the biggest state on the East Coast to legalize marijuana.
Now four more states have legalized recreational sales of the drug, leading to one-third of Americans living in states that have approved legal adult use of marijuana.
Acquiring Sweetwater Brewing Co…..
Aphria announced its entry into the U.S. via an agreement to acquire craft brewer Sweetwater Brewing Co. for around $300 million. The deal is expected to close before the end of December.
Aphria said SweetWater, known for brews that use terpenes and hemp flavoring, was "closely aligned with a cannabis lifestyle."
Last year, SweetWater brought in net sales of $66.6 million. Its adjusted EBITDA — or earnings before interest, taxes, depreciation and amortization — was $22.1 million.
Aphria said the acquisition "establishes an infrastructure" in the U.S. that would allow it to move quickly into the nation's cannabis market, whenever pot is legalized nationwide.
"We will establish and grow our U.S. presence through SweetWater's robust, profitable platform of craft brewing innovation, manufacturing, marketing and distribution expertise," Aphria CEO Irwin Simon said in a statement.
Simon also said the acquisition would help make more U.S. customers aware of its recreational pot brands — Broken Coast, Good Supply, Riff and Solei.
Trading at merely 3.5 times sales and 1.1 times book value, it may be surprising that to see that Aphria's valuation is at rock bottom despite being the biggest marijuana company in Canada in terms of gross revenue. The company controls 14% of Canada's cannabis market share, which is 20% more than competitor Canopy Growth Corp. All combined, Aphria's recreational cannabis, medical cannabis, vape, edibles, and distribution revenue totaled CA$145.7 million during the first quarter of 2021, which ended Aug. 31, representing an increase of 16% year over year.
Its operating income excluding non-cash items (EBITDA) also improved to CA$10 million from CA$8.6 million in the fourth quarter of 2020. With a net income of CA$5.1 million, or CA$0.02 per share, the company is getting closer to breaking even.
Right now, the company is on track to sell more than 83,000 kg of cannabis per year based on its annualized Q1 2021 sales figures. That is not too far off from its production capacity of 110,000 kg per year. The discrepancy is strikingly small compared to many of Aphria's peers, who are attempting to strike the tricky balance between cannabis supply and demand.
When a marijuana company can sell as much inventory as it can produce, it does not need to take impairments to the value of its facilities nor write off goods it cannot sell due to lackluster consumer demand. If its efforts to attain profitability continue to pay off, investors might reignite their hope that Aphria will put an end to its stock dilutions. Over the past three years, the company's shares outstanding have increased by nearly 41% to 287.5 million.
Aphria has not tapped into its $100 million share issuance program. The company is sitting tight with close to CA$400 million in cash compared to approximately CA$140 million in long term debt and CA$270 million in convertible notes.
With its strong sales growth, great valuation, and superb liquidity, Aphria is a top choice.