Option Trade
Microchip Technology Inc. (NASDAQ:MCHP) Calls
Friday, April 28, 2017

** OPTION TRADE: Buy the MCHP JUNE 16 2017 77.500 CALL at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Semiconductor stocks have been one of the best performing sectors so far this year. Now, even after experiencing a pullback earlier this month, the semiconductor group has been one of the strongest places to put your money in 2017. For the first quarter, the VanEck Vectors semiconductor ETF (SMH) was up 12%, far outpacing the S&P 500, up 5.5% over the same period including dividends. And when the SMH pulled back earlier this month, it found a powerful floor of support at its long-term trend line, and for the past few days it's been bouncing back pretty hard.

When it comes to the semis, Microchip Technology Inc. (NASDAQ:MCHP), which is engaged in developing, manufacturing and selling specialized semiconductor products used by its clients for a range of embedded control applications, is worth highlighting.

Microchip has been in a strong uptrend for the past year, with the latest leg starting at the end of December. When the big money likes a stock, it tends to keep going higher until something derails the story. And in the case of Microchip, we're dealing with a stock that has very strong institutional ownership. In other words, Microchip is almost an anointed winner at this point.

Beyond that, this stock recently had a successful test of its 50-day moving average, at around $72. Meanwhile, the full stochastic oscillator, a momentum indicator that tells us when a stock has gotten overbought or oversold, is flashing a buy signal here as it moves higher. Plus, the moving average convergence divergence or MACD indicator, a tool that helps technicians detect changes in a stock's trajectory before they happen, just made a bullish crossover, where the black line crosses above the red one, and this is one of the most reliably positive signals out there.

 And now that Microchip Technology has cleared its near-term ceiling of resistance at $75, then it can make its way to $86 in the not too distant future.

Analysts await Microchip Technology Inc. to report earnings on May 9. They expect $0.99 EPS, up 52.31% or $0.34 from last year’s $0.65 per share. MCHP’s profit will be $218.68 million for 19.37 P/E if the $0.99 EPS becomes a reality. After $1.00 actual EPS reported by Microchip Technology Inc. for the previous quarter, Wall Street now forecasts -1.00% negative EPS growth.

Microchip Technology has a 50-day moving average of $73.85 and a 200-day moving average of $67.76. Microchip Technology has a 52 week low of $46.98 and a 52 week high of $77.32. The company has a market cap of $16.61 billion, a price-to-earnings ratio of 186.74 and a beta of 1.08.

Influencing Factors to Consider               

In January, the stock broke from $66.75 to consolidate in the mid-$70s before smashing through $74.50 last week, and is now at $76.75.

On Feb. 8 Standard & Poor’s Capital IQ renewed its four-star Buy opinion on the stock and raised its 12-month target to $85 from $75. They also increased their fiscal year (March) 2017 estimate by 15 cents to $3.76 and their FY 2018 to $4.11 from $3.97. These changes were due to an earnings and top-line surprise in the December quarter when the company reported EPS of $1.05, which beat the Capital IQ consensus of 90 cents.

Sales rose 0.8% above the September quarter due to higher microcontroller and analog revenues. S&P said in their February note that the Atmel acquisition contributed to the earnings and revenue surprise.

Last week’s breakout is supported by fundamental and technical factors: Technically the breakout from $74.50 followed a premature high-volume breakout in February. After a one-day decline, MCHP consolidated for two months before breaking out last week from the consolidation at $72 to $74.50. Accumulation has been steady since February, and an MACD buy signal was triggered last week when the price broke through the 50-day moving average at about $73.

Yesterday’s close ($76.75) exceeded the February high at $76.50 and is predictive of a higher near-term ascent.

Analysts and Hedge Funds Opinions

Microchip Technology Inc. was upgraded by research analysts at Summit Redstone from a “hold” rating to a “buy” rating in a research report issued to clients and investors on Tuesday. The brokerage currently has an $82.00 target price on the semiconductor company’s stock, up from their previous target price of $65.00. Summit Redstone’s price target would suggest a potential upside of 10.17% from the company’s current price.

Also, Microchip Technology Inc. had its target price boosted by Stifel Nicolaus from $77.00 to $83.00 in a research note issued on Friday. The brokerage presently has a “buy” rating on the semiconductor company’s stock. Stifel Nicolaus’ target price now points to a potential upside of 11.51% from the company’s current price.

Several other brokerages have issued reports on the company….

  • Citigroup Inc set an $85.00 target price on Microchip Technology and gave the stock a “buy” rating in a research note on Wednesday, February 8th.
  • Jefferies Group LLC reaffirmed a “buy” rating and set an $87.00 target price (up from $72.00) on shares of Microchip Technology in a research note on Wednesday, February 8th.
  • B. Riley reaffirmed a “buy” rating and set a $90.00 target price on shares of Microchip Technology in a research note on Wednesday, February 8th.
  • Rosenblatt Securities reaffirmed a “buy” rating and set a $90.00 target price on shares of Microchip Technology in a research note on Thursday, February 23rd.
  • Finally, Needham & Company LLC reaffirmed a “buy” rating and set a $100.00 target price on shares of Microchip Technology in a research note on Friday, March 10th.

Five analysts have rated the stock with a hold rating and thirteen have issued a buy rating to the company’s stock. The stock has a consensus rating of “Buy” and a consensus target price of $86.00.

Several other hedge funds have recently modified their holdings of the company……

  • Franklin Street Advisors Inc. NC purchased a new stake in shares of Microchip Technology during the first quarter valued at approximately $232,000.
  • Sumitomo Mitsui Trust Holdings Inc. increased its stake in shares of Microchip Technology by 7.4% in the third quarter. Sumitomo Mitsui Trust Holdings Inc. now owns 628,906 shares of the semiconductor company’s stock valued at $39,080,000 after buying an additional 43,578 shares during the period.
  • Public Employees Retirement Association of Colorado increased its stake in shares of Microchip Technology by 18.1% in the third quarter. Public Employees Retirement Association of Colorado now owns 903,086 shares of the semiconductor company’s stock valued at $56,118,000 after buying an additional 138,572 shares during the period.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 ** OPTION TRADE: Buy the MCHP JUNE 16 2017 77.500 CALL at approximately $2.00. Place a pre-determined sell at $4.00.

Note: No protective stop losses added -- but if you wish to do so make it $0.80.

 ”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!

Options traders are not successful because they win.

Options traders win because they are successful.



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