“Mentorship Program” Recommendations
- Week Beginning -
Monday, January 28, 2019

by Ian Harvey

For direct contact -- information@stock-options-made-easy.com

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

ALSO

"Trading Capital Management"



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

Thursday, January 31, 2019

** OPTION TRADE: Buy SWKS MAR 15 2019 77.500 CALL at approximately $2.15.

Place a pre-determined sell at $4.30.

Also include a protective stop loss of $0.85.

Skyworks Solutions Inc (NASDAQ: SWKS), a smartphone chip supplier, has been pounded mercilessly since its earnings shortfall in July. That was around the $100 level, and now the stock price is about 30% lower in just five months.

There seemed to be no relief in sight. Though the semiconductor maker is larger than ever, the stock had declined to its lowest level since 2016.

The reason? Declining sales of smartphones -- especially worry over key customer Apple (NASDAQ: AAPL) and how many iPhones will be sold in the next year.

However, this has started to change….the decline had been overdone!

Thanks to the drop-off, SWKS stock trades at just 9x forward earnings.

Profits also appear positioned to recover once the industry works off the glut in available chips. For fiscal 2020, Wall Street forecasts profit growth of 9.6%. They also believe those increases will reach the double-digits in future years. The move to 5G should ensure this growth continues. With few companies offering such a value proposition at so low of a P/E ratio, SWKS should see increased interest from investors in the near future.

Skyworks Solutions, a supplier of Apple Inc. warned of a revenue shortfall for its fiscal first quarter, attributing the downward guidance revision to unit weakness across major smartphone customers.

Despite this announcement, D.A. Davidson analyst Thomas Diffely reiterated a Buy rating on Skyworks shares and maintained an $85 price target. DA Davidson Stays Bullish

Also, Raymond James analyst Chris Caso reiterated a Market Perform rating.        

“Skyworks' warning does not come as a surprise, especially after twin pre-announcements by Apple and Samsung Electronics Co Ltd, two of Skyworks' largest customers”, analyst Diffely said in a Wednesday note.

New customer ramps did little to prop up December quarter results, the analyst said. 

D.A. Davidson lowered its December quarter revenue estimate by $30 million and pro forma EPS estimate by 8 cents, but left the rest of its Skyworks model intact. 

This year should be one of transition for RF semiconductor names as increased RF content is offset by macroeconomic- and China-driven weaknesses, Diffely said.

Although the move to 5G is the next big catalyst, it is likely to have a material impact only when 5G handsets start to ramp in 2020, he said. 

With D.A. Davidson already having trimmed its 2019 expectations and price target for Skyworks, it left its calendar 2019 estimates unchanged.

About Skyworks Solutions …..

Skyworks Solutions, Inc, together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators.

Past Earnings.….

Skyworks Solutions last announced its earnings results on Thursday, November 8th. The semiconductor manufacturer reported $1.94 earnings per share for the quarter, topping the Zacks’ consensus estimate of $1.92 by $0.02.

The firm had revenue of $1.01 billion during the quarter, compared to analyst estimates of $1 billion. Skyworks Solutions had a net margin of 23.74% and a return on equity of 30.59%. The company’s revenue for the quarter was up 2.3% compared to the same quarter last year. During the same period in the prior year, the business earned $1.82 EPS. Analysts expect that Skyworks Solutions will post 6.29 earnings per share for the current fiscal year.

Future Earnings…..

Skyworks issued a forecast for the fiscal first quarter calling for revenue in the range of $1 billion to $1.02 billion, which should translate into non-GAAP earnings per share of $1.91. Notably, Skyworks pointed to "unit declines in premium smartphones" as a contributing factor in the outlook. Other notable iPhone suppliers have similarly been issuing their own warnings regarding the coming quarter, forming a constellation of data points that is only exacerbating investor sentiment around the Mac maker and its suppliers.

On the earnings call last month, Skyworks CEO Liam Griffin assured analysts that the company's "content position is solid," so it's not that Skyworks is losing design wins at Tier 1 manufacturers to competitors. "So it's not a case where we fumbled and didn't execute or weren't able to win the sockets that we pursued," Griffin added. While Apple has for years been trying to shift a core part of its investing thesis toward its services business, hardware component suppliers don't have that luxury, so the global smartphone market's slowing growth will weigh on those companies' prospects.

The company is expected to announce its next quarterly earnings results on Monday, February 4th.

Analysts….

Skyworks Solutions‘s stock had its “market perform” rating restated by investment analysts at Oppenheimer in a report released on Monday, January 7th. They presently have a $110.00 target price on the semiconductor manufacturer’s stock. Oppenheimer’s price target would suggest a potential upside of 53.76% from the company’s current price.

And, Skyworks Solutions was upgraded by investment analysts at B. Riley from a “neutral” rating to a “buy” rating in a research report issued on Monday. The firm currently has a $90.00 price target on the semiconductor manufacturer’s stock, up from their prior price target of $80.00. B. Riley’s price objective indicates a potential upside of 24.19% from the company’s previous close.

As well, Skyworks Solutions‘s stock had its “market perform” rating reiterated by CIBC in a research report issued on Monday, January 7th.

Also, Skyworks Solutions was upgraded by analysts at BidaskClub from a “sell” rating to a “hold” rating in a research note issued on Saturday, January 12th.

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

  • Zacks Investment Research upgraded shares of Skyworks Solutions from a “sell” rating to a “hold” rating in a research note on Friday, November 16th.
  • Loop Capital reduced their price objective on shares of Skyworks Solutions to $102.00 and set a “buy” rating for the company in a research note on Friday, November 9th.
  • ValuEngine raised shares of Skyworks Solutions from a “strong sell” rating to a “sell” rating in a research report on Thursday, December 6th.
  • UBS Group assumed coverage on shares of Skyworks Solutions in a research report on Thursday, December 6th. They set a “neutral” rating and a $70.00 target price on the stock.
  • Susquehanna Bancshares assumed coverage on shares of Skyworks Solutions in a report on Friday, December 7th. They issued a “neutral” rating and a $80.00 price target on the stock.
  • Finally, DA Davidson dropped their target price on shares of Skyworks Solutions to $115.00 and set a “buy” rating on the stock in a report on Monday, November 12th.

Four investment analysts have rated the stock with a sell rating, sixteen have assigned a hold rating and fourteen have assigned a buy rating to the company’s stock. Skyworks Solutions currently has a consensus rating of “Hold” and an average price target of $95.01.

Summary

Skyworks Solutions has a market cap of $12.70 billion, a PE ratio of 11.15, a PEG ratio of 1.05 and a beta of 0.66. Skyworks Solutions has a 1-year low of $60.12 and a 1-year high of $115.98.


Option Trade – Roku Inc. (NASDAQ: ROKU) Calls

Tuesday, January 29, 2019

** OPTION TRADE: Buy ROKU FEB 15 2019 45.000 CALL at approximately $2.00.

Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.

The Los Gatos, California-based TV streaming platform Roku Inc. (NASDAQ: ROKU) had a bad 2018 due to a convergence of headwinds which investors extrapolated to mean slower growth and lower margins going forward. But, Roku's growth isn't slowing.

This is still a huge revenue growth company with a rapidly growing user base that is becoming more and more addicted to streaming content through Roku devices. Margins are also moving higher since revenue growth is coming from the high margin Platform segment. As sentiment normalizes to reality in 2019, highly volatile Roku stock could easily run back to all-time highs.

Prior to yesterday’s trading, shares of the video streaming company had gained 42.12% over the past month. This has outpaced the Consumer Discretionary sector's gain of 14.05% and the S&P 500's gain of 12.44% in that time.

Roku is a fast-growing platform deserving of its high-ish multiple as it has more than 28 million active users. In 2019, Roku looks to build a true content ecosystem - and from a subscriber standpoint, already has surpassed Charter Communications Inc (NASDAQ: CHTR) and trails only AT&T Inc. (NYSE: T) and Comcast Corporation (NASDAQ: CMCSA).

Margins in the platform segment are very attractive and should allow Roku to turn profitable relatively quickly. International markets remain largely untapped.

About Roku……

Roku, Inc operates a TV streaming platform. The company operates in two segments, Player and Platform. Its platform allows users to search, discover, and access approximately 500,000 movies and TV episodes, as well as live sports, music, news, and others. As of December 31, 2017, the company had 19.3 million active accounts.

Recent Movement…..

Roku wants to make good on its promise of transforming itself from a hardware maker into a platform that generates recurring revenue streams.

Cable TV is dying, and streaming is the future. Finding a central hub from which to access all the available programming will be important as the medium matures. Roku is perhaps best positioned to be that vertically-integrated access point.

Roku is no longer just a manufacturer of devices that let you stream video. Its software platform has broad reach beyond Roku devices, too.

Fully one quarter of all smart TVs sold in the U.S. during the first nine months of 2018 came with the Roku operating system pre-installed, based on the company's estimates. Roku TVs provide lots of options and features for viewers accessing streaming content -- and at discount prices.

Roku aggregates a huge amount of content in one spot, and there are thousands of channels from which to choose. Users can sign up for subscriptions without having to leave the company's ecosystem, getting billed through Roku.

This also enables Roku to attract more advertising, the primary way it now makes money. Moreover, Roku earns a cut from ads that appear on other streaming services, because it demands the right to sell up to 30% of its content partners' ad inventory if their shows are to be available on its devices. Thus, ads seen on other streaming services might have actually been sold by Roku.

Influencing Factors…..

Roku stock has rallied this month due to several factors…..

  • ….. Roku added paid subscriptions to Roku Channel, thereby allowing subscribers to watch paid programming from Showtime, Starz, and Epix through the Roku Channel.
  • …..Roku reported strong fourth-quarter engagement numbers that included a 40% increase in active accounts and nearly 70% growth of streaming hours.
  • …..Walmart (NYSE:WMT) backed out of plans to launch a streaming service, showing that streaming is hard to do, and that Roku has a big enough moat to keep big competitors away.

All together, these positive developments underscore that Roku continues to innovate, expand, and grow at a rapid rate, perhaps so quickly that it is deterring other companies from entering the space. That's a major positive development for Roku stock. This means that the bull thesis of ROKU turning into a major streaming player continues to gain traction.

Roku has bounced around wildly in 2017 and 2018.

These wild swings are expected to slow in 2019. That's because ROKU has been a public company for six quarters and in each of those six quarters, its active account growth has been 40% or higher, while it’s streaming hours have increased by at least 50%.

That is consistent and healthy growth which underscores that, regardless of the surrounding competitive environment; Roku's continued leverage of technology and network effects has enabled it to remain a leader of the streaming device market.

It is expected that Roku stock price will rise, and at a much more steady and stable pace than has previously been the case.

Past Earnings.….

Roku) last issued its quarterly earnings data on Wednesday, November 7th. The company reported ($0.09) earnings per share for the quarter, beating analysts’ consensus estimates of ($0.12) by $0.03. The firm had revenue of $173.40 million during the quarter, compared to analyst estimates of $170.73 million. Roku had a negative return on equity of 4.46% and a negative net margin of 1.33%. Roku’s quarterly revenue was up 38.9% on a year-over-year basis. During the same quarter last year, the firm earned ($0.10) EPS.

Future Earnings…..

Wall Street will be looking for positivity from ROKU as it approaches its next earnings report which is expected to be February 20, 2019. ROKU is projected to report earnings of $0.01 per share, which would represent a year-over-year decline of 83.33%. The most recent consensus estimate is calling for quarterly revenue of $261.52 million, up 38.91% from the year-ago period.

Stock analysts at William Blair lifted their Q4 2018 earnings estimates for Roku in a note issued to investors on Thursday, January 10th. William Blair analyst R. Schackart now expects that the company will post earnings of $0.02 per share for the quarter, up from their prior forecast of $0.01. William Blair also issued estimates for Roku’s Q1 2019 earnings at ($0.16) EPS, Q2 2019 earnings at ($0.13) EPS, Q3 2019 earnings at ($0.15) EPS, Q4 2019 earnings at ($0.12) EPS, FY2019 earnings at ($0.55) EPS and FY2020 earnings at ($0.26) EPS.

Also, research analysts at SunTrust Banks lifted their FY2018 earnings per share (EPS) estimates for Roku in a note issued to investors on Tuesday, January 8th. SunTrust Banks analyst M. Thornton now expects that the company will post earnings per share of ($0.13) for the year, up from their prior forecast of ($0.15). SunTrust Banks currently has a “Hold” rating and a $36.00 target price on the stock.

Moving Forward…..

Roku Inc. will start rolling out premium subscriptions on The Roku Channel on Monday.

The move, announced earlier this month, enables Roku customers to subscribe to more than 25 premium entertainment partners such as Showtime, Starz and Epix without having to download additional apps. Rather, they’ll be able to watch paid content alongside The Roku Channel’s 10,000 free, ad-supported TV shows and movies in one interface.

Users who sign up for Showtime, Starz and Epix before March 31 will get a 30-day free trial on The Roku Channel.

All supported devices are slated to receive the update in the coming weeks, starting with Roku players and concluding with Roku TVs.

Also, The Roku Channel is now viewable on Roku’s mobile app on iOS devices starting Monday, with an Android update expected to start rolling out in mid-February.

Analysts….

Roku has earned a consensus recommendation of “Buy” from the eighteen brokerages that are currently covering the stock reports. One research analyst has rated the stock with a sell rating, six have issued a hold rating, ten have issued a buy rating and one has issued a strong buy rating on the company. The average target price among analysts that have issued ratings on the stock in the last year is $55.78.

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

  • ValuEngine upgraded shares of Roku from a “hold” rating to a “buy” rating in a research note on Wednesday, October 3rd.
  • Zacks Investment Research upgraded shares of Roku from a “hold” rating to a “buy” rating and set a $47.00 target price for the company in a research note on Wednesday, January 9th.
  • Morgan Stanley raised their target price on shares of Roku from $45.00 to $50.00 and gave the stock an “equal weight” rating in a research note on Monday, November 5th.
  • Loop Capital cut their target price on shares of Roku to $40.00 and set a “hold” rating for the company in a research note on Tuesday, January 15th.
  • Finally, SunTrust Banks initiated coverage on shares of Roku in a research note on Monday, December 17th. They set a “hold” rating and a $36.00 target price for the company.

Summary

Roku stock trades at just 4.5x forward sales. And, at its peak, it traded at over 10x forward sales. But other high margin, high growth, and still small software companies attacking big addressable markets usually trade at forward multiples of 7 or greater.

Sales estimates for fiscal 2020 could easily march towards $1.3 billion in 2019. A 7x multiple on $1.3 billion implies a market cap of $9.1 billion. Roku currently has a market cap of under $4.5 billion.

Roku has a one year low of $26.30 and a one year high of $77.57. The company has a market cap of $4.47 billion, a PE ratio of -18.29 and a beta of 3.26.


DOUBLE-DOWN......

Option Trade – Parsley Energy Inc (NYSE: PE) Calls

Tuesday, January 29, 2019

** OPTION TRADE: Buy PE MAR 15 2019 20.000 CALL at approximately $0.60.

This will now make the break-even price at approx. $0.80.

Place a pre-determined sell at $1.60.

Also include a protective stop loss of $0.35.

NOTE: Below is the original information pertaining to this recommended trade and is still applicable. The pullback in the market yesterday has allowed us to re-align our trade on PE.

…..further analyst input…..

All top-performing Wall Street pros are bullish on the stock.

RBC Capital's Scott Hanold is among the analysts who believe in Parsley Energy. He has just reiterated his "Buy" rating with a $32 price target (73% upside potential).

"PE's pivot to maintain current activity levels demonstrates the strategy maturation that should win over investors," Hanold writes. The company is tapering growth to deliver better free cash flow (FCF).

As the analyst writes, "(Parsley Energy) is a high-growth E&P that had promises of FCF but now can show FCF with solid growth within an investable time frame." He is now modeling for free-cash-flow generation by early in the second half of 2019, with more meaningful FCF growth set for 2020. Hanold points out the strong returns from the company's Wolfcamp A/B wells, and sees "valuation upside" in the Wolfacmp C, Lower Spraberry and Delaware Permian delineation.

Ultimately, says the analyst, Parsley Energy shares should outperform the company's peer group over the next 12 months. "PE's production growth profile, balance sheet, and oil hedge book are best-in-class and differentiate from peers."

 

…..The Original Recommendation…..

Texas-based oil and natural gas firm Parsley Energy Inc (NYSE: PE) has recently climbed above two key technical levels.

Barclays initiated coverage on Parsley Energywith an "overweight" rating and $38 price target – more than 100% premium above the present price. The brokerage firm said that the  firm's "steady activity program" will create a constant cash flow.

The security peaked above $31 on Oct. 9, before sinking to a three-year low of $14.17 on December 26. The shares quickly bounced from here, and are now trading back above a 23.6% Fibonacci retracement of this sell-off and their 40-day moving average.

Sentiment is mostly upbeat toward the energy name, with roughly 82% of covering analysts maintaining a "strong buy" rating, and not a single "sell" on the books. Plus, the average 12-month price target sits all the way up at $30.

About Parsley Energy……

Parsley Energy, Inc, an independent oil and natural gas company, engages in the acquisition, development, production, exploration, and sale of crude oil and natural gas properties in the Permian Basin in West Texas and Southeastern New Mexico. As of December 31, 2017, its acreage position consisted of 219,747 net acres, including 174,392 net acres in the Midland Basin and 45,355 net acres in the Delaware Basin; and 241.0 net producing horizontal wells and 731.5 net producing vertical wells, as well an estimated proved oil and natural gas reserves were 416.4 MMBoe.

Past Earnings.….

Parsley Energy last released its earnings results on Thursday, November 1st. The oil and natural gas company reported $0.45 earnings per share for the quarter, beating the Thomson Reuters’ consensus estimate of $0.44 by $0.01. Parsley Energy had a return on equity of 6.77% and a net margin of 21.70%. The company had revenue of $511.00 million for the quarter, compared to analysts’ expectations of $493.44 million. During the same quarter in the previous year, the business posted $0.12 EPS. The business’s revenue for the quarter was up 112.0% on a year-over-year basis. As a group, equities analysts forecast that Parsley Energy will post 1.53 earnings per share for the current fiscal year.

Future Earnings…..

Piper Jaffray Companies decreased their Q1 2019 earnings per share (EPS) estimates for shares of Parsley Energy in a research note issued to investors on Wednesday, January 9th. Piper Jaffray Companies analyst K. Harrison now forecasts that the oil and natural gas company will post earnings per share of $0.14 for the quarter, down from their previous forecast of $0.33.

Piper Jaffray Companies currently has a “Buy” rating and a $46.00 target price on the stock.

Piper Jaffray Companies also issued estimates for Parsley Energy’s Q2 2019 earnings at $0.16 EPS, Q3 2019 earnings at $0.29 EPS, Q4 2019 earnings at $0.35 EPS, FY2019 earnings at $0.94 EPS, Q1 2020 earnings at $0.33 EPS, Q2 2020 earnings at $0.34 EPS, Q3 2020 earnings at $0.37 EPS, Q4 2020 earnings at $0.40 EPS and FY2020 earnings at $1.45 EPS.

Analysts….

Imperial Capital reissued their outperform rating on shares of Parsley Energy in a research report published on Friday, January 4th. They currently have a $33.00 price target on the oil and natural gas company’s stock, down from their previous price target of $45.00.

Barclays started coverage on shares of Parsley Energy in a report released on Wednesday, last week. The firm issued an overweight rating and a $38.00 price objective on the oil and natural gas company’s stock.

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

  • Zacks Investment Research raised Parsley Energy from a hold rating to a buy rating and set a $31.00 target price on the stock in a research note on Monday, October 22nd.
  • SunTrust Banks set a $35.00 price target on Parsley Energy and gave the company a buy rating in a report on Tuesday, November 27th.
  • Piper Jaffray Companies set a $46.00 target price on shares of Parsley Energy and gave the company a buy rating in a research report on Tuesday, October 23rd.
  • Goldman Sachs Group raised shares of Parsley Energy from a neutral rating to a buy rating and set a $30.00 price objective for the company in a research report on Tuesday, November 27th.
  • Citigroup raised shares of Parsley Energy from a neutral rating to a buy rating in a research report on Friday, December 21st.Morgan Stanley lifted their price target on Parsley Energy from $32.00 to $35.00 and gave the company a hold rating in a report on Wednesday, September 26th.
  • Finally, Seaport Global Securities set a $23.00 price target on Parsley Energy and gave the company a buy rating in a report on Thursday, December 20th.

One equities research analyst has rated the stock with a sell rating, five have issued a hold rating, twenty-seven have assigned a buy rating and one has given a strong buy rating to the company’s stock. Parsley Energy presently has an average rating of Buy and an average price target of $33.48.

Insider News….

Director A R. Alameddine acquired 5,000 shares of Parsley Energy stock in a transaction on Tuesday, November 27th. The shares were bought at an average price of $21.10 per share, with a total value of $105,500.00. Following the completion of the purchase, the director now owns 122,643 shares in the company, valued at $2,587,767.30.

Summary

Parsley Energy has a debt-to-equity ratio of 0.35, a quick ratio of 0.70 and a current ratio of 0.70. Parsley Energy has a fifty-two week low of $14.17 and a fifty-two week high of $33.43. The stock has a market cap of $6.10 billion, a price-to-earnings ratio of 27.90, a price-to-earnings-growth ratio of 0.49 and a beta of 0.23.