Molson Coors (TAP) will report earnings on Wednesday before the open with the Street looking for $2.15 on $3.1B in sales. Next quarter is guided to $1.98 on $2.99B while the FY is at $6.49 and $11.12B. Shares have closed higher three of the last five reports with a six-quarter average closing move of 1.98%, a max move of 4.7%, and a minimum move of 0.1%. IV skew is slightly bullish at 1.9% vs a 52-week average of 9.9% while 30-day IV is 21% which is in the 38th percentile of its 52-week range. The market is pricing a 3.6% move for the week ending 8/4. The $19B brewer trades 13.4X earnings, 2.85X sales, and 1.65X book with a 1.84% dividend yield. TAP is undergoing a major portfolio shift recently with brands which stretch from Coors and Blue Moon to Peroni and Keystone. The company acquired the entirety of their JV with SAB last year and sees $11B in sales and $24B in EBITDA under the NewCo. 2017 is seen as a year of integration and cost-cutting as they build out their footprint and accelerate topline growth. They are looking to pay down debt with the more than $1B in FCF. Volume growth is expected to be flat through 2018 in the US before growing and Canada and Europe expected to remain stable. They see opportunity in both premium brands with Belgian white up low-single digits while expanding into new brands like Sol which take advantage of the fastest growing segment of Mexican imports. Q1 saw significant trend improvements in their economy brands also with Miller High Life having the best quarter since 2009 and Hamms was up in the high-teens. Analysts have an average target for shares of $114 with 5 buy ratings and 4 hold ratings. CSFB cut their PT for shares to $95 earlier this year seeing EBITDA under expectations with MG&A costs spiking last quarter. The company sees additional cocnerns with management investing ahead of the curve. Soc Gen called 2017 a transition year for shares with margins under pressure as they integrate Miller. The cost-savings likely won’t be recognized until 2018 and concerns of US trade and Mexico remain. Institutional ownership fell 2% but Diamond Hill a new 2M share position and Millennium remains a top holder. Short interest is 2.43% and up in the last three months from 1.35%. TAP last saw insider buying in December 2016 from Chairman of the Board Geoffrey Molson who bought 1, 000 shares at $127.75.
Whirlpool (WHR) will report earnings on Wednesday after the Close with the Street looking for $3.54 on $5.35B in revenue, a 2.8% increase Y/Y. Next quarter is guided to $4.25/$5.53B while the FY is at $15.12/$21.53B. WHR has closed lower two of the last three reports and has a six-quarter average closing move of 5.16%, a max move of 10.8%, and a minimum move of 1.8%. 30-day IV is 28.6% and in the 88th percentile of its 52-week range, down somewhat the past week after headlines. The weekly straddle is pricing in a 5.3% move for the week. The $14.14B appliances company trades 11X earnings, 0.68X sales, and 14.85X cash with a 2.3% dividend yield, cheap across most metrics with double-digit earnings growth. Revenue growth dipped last year but expected to reaccelerate to 3.9% in 2017 and 4.2% in 2018 which is more in line with historical standards. Whirlpool has been growing their global footprint over the last three years with long-term growth seen in India/China, better pricing in Latin America, and leveraging value from their Indesit acquisition in Europe. China represents a big opportunity as they are not in the top two in market share in the space. The company has long-term goals of 3-5% organic growth, 10% EBIT margins, and 5-6% FCF as a percentage of overall sales by 2018. WHR is looking to take advantage of the recognizable brands such as KitchenAid, Maytag, and Jenn-Air. WHR has been in legal disputes with LG and Samsung over washing machine dumping in the US which has been pressuring margins and sales. They could also see strength from Electrolux which highlighted better demand in N. America last week on their earnings call. Analysts have an average target for shares of $192 with 3 buy ratings and 5 hold ratings. Credit Suisse starting shares with a $208 PT recently noting that the company is nearing a long-term inflection point with one-time company-related issues about to subside while healthy demand trends and improving macro are tailwinds. They continue to see concerns in the near-term from higher raw material costs and intense competition which is keeping growth subdued. Shares fell last week due to an announced Sears/Amazon team-up but JP Morgan out noting that the company can adapt to a changing environment well and if Amazon becomes a large enough distribution channel, they may eventually seek a partnership as well. Institutional ownership rose 1% recently, Greenhaven an owner of more than 2.7M shares while Lyrical Asset Management with a 1M shares. Short interest is 6.44%. WHR last saw insider buying in February at $179 when a Director bought 1,000 shares.
Fastenal (FAST) will report earnings on Wednesday before the open with the Street looking for $0.50 on $1.11B in sales, a 9% increase Y/Y. Next quarter is guided to $0.48 on $1.10B while the FY is $1.88/$4.3B. FAST has a weak history of earnings returns with just three positive closing moves since October 2012 and lower last quarter by 8%. The six-quarter average closing move is 3.95% while the max move is 8.1%, the minimum move is 0.1%. 25-delta put/call skew is 3.9% vs a 52-week average of 2.6%, slightly bearish. 30-day IV is 33.5% which is the highest of the year. The options are pricing in a 6.1% move for shares this quarter. The $12.69B industrial equipment maker of supplies such as fasteners, bolts, nuts, and screws for construction trades 21.4X earnings, 3.17X sales, and 6.4X book with a 2.92% dividend yield. FAST expects 8% revenue growth in each of the next two years, a jump from the prior two which saw 2-3%, and EPS expected to climb back above $2. The company reported 9.7% May ADS which were in-line with expectations of 10% and improved from April which was 8.9%. In the first half of the year, ADS are up 8.9% vs the 5-year average of 6.5%. Sales of higher-margin fasteners continue to grow, up 6% in both April and May, with all segments (manufacturing, non-residential construction) higher M/M. Analysts have an average target for shares of $50 with 8 buy ratings and 7 hold ratings. Stephens positive on 6/7 noting that ADS growth was better than expected in May and sixth month of acceleration. 1H growth is tracking higher than the consensus. Longbow positive checks on 6/2 into the quarter noting that distributor checks are showing the highest growth to data with heavy equipment demand driving the acceleration while confidence for a 2H recovery in industrials is growing. Institutional ownership fell 1.28%. Bares Capital, a $1.8B fund out of Austin-TX, a top holder with 3.2M shares and adding last quarter, now their second largest position. Short interest is 9.39% and rising since January when it was 6.71%. FAST has seen a number of insider buys since mid-April with the largest from Director Darren Jackson of 5,000 shares at $44.75.
Nike (NKE) will report earnings on Thursday after the close with the Street looking for $0.50 on $8.64B in sales, a 4.8% increase Y/Y. Next quarter is guided to $0.66 and $9.49B while the FY is at $2.41 and $34.3B. Shares have closed lower in four of the last six quarters, down more than 7% last quarter, and a six-quarter average move of 3.65%. The max move is 7.1% and a minimum move is 1.0%. IV at 27.8% is in the 48th percentile of its 52-week range of 14.3% to 35.2%. The June 30th (W) straddle is pricing in a 5.3% move. The $89.75B company trades 20.8X earnings and 2.65X sales with a 1.37% dividend yield. NKE sales growth has slowed to 5.9% and 6.4% in 2017/2018 after being in the high-single digits each of the last three years while EPS is expected to be over $2.50. Margins have come under pressure, down 140 basis points last quarter, with costs and FX offsetting ASP gains. Futures orders were down 4% last quarter for the NIKE brand while China futures are growing in low-single digits. Shares jumped a bit this past week after commentary regarding potential deal to sell directly on Amazon, Goldman Sachs noting the move would expand NKE’s access to millennials through AMZN’s distribution channel. On 6/15, the company announced it would cut 2% of workforce while reducing styles in some areas. Analysts have an average target for shares of $60.50 with 19 buy ratings, 14 hold ratings, and 2 sell ratings. Cowen cut estimates on 6/20 with their checks showing elevated promotions continuing in footwear and apparel in N. America, the latter 45% of sales. They also note UAA and Adidas continue to grow in the market. BAML negative on 5/22 seeing high inventory levels, market share losses, and weak sell-through rates in key premium categories as going concerns. Institutional ownership rose 2.27% in Q1 filings, Lone Pine a notable buyer of 4.7M shares and now a 19M share stake.
Car-Max (KMX) will report earnings on Wednesday before the open with the Street looking for $0.98 on $4.46B in sales, an 8% increase Y/Y. Next quarter is guided to $0.93 and $4.25B while the FY is at $3.52/$16.87B. Shares have closed lower six of the last eight quarters but higher the last two with an eight-quarter average closing move of 4.67%, a max move of 7.2%, and a minimum move of 2%. Options are pricing in a 7% move this quarter, low compared to the prior five straddles which were closer to 9%. Implied volatility at 38.8% is in the 58th percentile of its 52-week range of 24.7% to 50.6%. The 25-delta volatility skew is 1.0% vs a 52-week average of 7.9%, slightly bullish. The $11.56B auto dealership trades 15.6X earnings, 0.73X sales, and 3.65X book. KMX revenue growth has slipped under 5% in 2016 but expected to accelerate to 6.3% and 6.9% respectively in 2017/2018 as they expand their footprint and increase investment in online. EPS has grown from $2.20 in 2013 to more than $3.85 expected. KMX is the largest used car sales platform in the US and coming off a strong quarter with 13.4% growth in used vehicle unit sales and +8.7% comps driven by an increase in store traffic and better conversion. Wholesale vehicle sales were weak, down 1.2%, while their financing unit saw 10% decline in income. ASP fell 1.6% for used vehicles. Analysts have an average target for shares of $66 with 7 buy ratings, 3 hold ratings, and 1 sell. Wedbush upgraded shares to Outperform on 5-18 with a $70 target. The firm thinks Q1 comps with be healthy while auto financing profits will start to moderate their declines. The risk of a credit-driven blowout has reduced considerably in their view and the core business will remain strong. On 4-5, MScience noted that Q1 was tracking very strong with SSS +8-10% vs a consensus at +5%. Institutional ownership fell 2.89% in Q1 filings, Melvin Capital a top holder with 9.7M shares and Ruane, Cuniff with a 9.7M share position, their third largest. Short interest is 15.55%, down from over 20% in early 2016.
Textron (TXT) will report earnings 4/19 before the open with the Street looking for $0.46 EPS (-17% Y/Y) and $3.17B in Revenues (-0.9% Y/Y), and FY17/18 forecasted at $2.58/$14.49B and $2.99/$15.07B. TXT shares sold off as much as 11.58% on last quarter’s report before closing down 5.36%, but closed higher 9 of the previous 10 reports, a 6 quarter average max move of 7.34%. The $12.65B Aerospace/Defense Co. trades 15.66X Earnings, 0.92X Sales and 23.25X FCF with a small dividend yield and targeting 5% revenue growth in 2017. TXT’s EBITDA margins at 10.9% are quite weak compared to peers, leaving room for upside. In 2016 Aviation accounted for 36% of revenues, Bell Helicopter 23%, Industrial 27%, Systems 13% and Finance 1%. Kautex is an Industrial unit that does $2.3B in sales as a supplier to Tier 1 Auto OEM, which could see some weakness considering recent auto sale numbers. Analysts have an average target of $53 on shares and short interest is minimal at 1.7% of the float. TXT announced a deal for Arctic Cat (ACAT) recently for $247M. CSFB rates shares Outperform with a $50 target, expecting military and FMS offsetting the glut in commercial rotorcraft for the Bell unit. Cowen has a $60 target on shares expecting the business jet trends to improve throughout the year. BAML has a $53 target on shares at 18X FY18 estimates considering the positive inflection point in US defense spending and near trough revenues at Aviation. On the chart, TXT shares have formed a wedge back to $45 support during 2017 while in a strong uptrend a potential explosive pattern if shares clear $48.40 resistance. TXT will present at the Electrical Products Group Conference on 5-21 as an additional catalyst. Institutional ownership rose 1.73% in Q4 filings, notable top buyers included Victory Capital, Adage Capital and Millennium. TXT options are pricing in a 5.55% earnings move, and 30 day IV Skew at +1% compares to a 52-week average of +6.8%. On 3/17 a trader bought 3,000 April $48/$45 put spreads to open which remain in OI, while on 4/5 the April $46 puts sold to open 2,000X. The June expiration has the most interesting positions including a buyer of 5,000 June $47 calls on 4/3, a buyer of 5,000 June $50 calls on 3/1, and 2,000 more June $50 calls bought and added on 4/11.
Fair Isaac (FICO) will report results after the close and shares have closed higher 3 of the last 4 reports with a 6 quarter average max move of 10.08%, a volatile name on earnings. FICO is a leading analytic software company specializing in decision management offering credit scores and other models with 10,000+ clients in 100+ countries and a focus on Banking, Insurance, Retail, and Health Care industries. FICO also offers Falcon Fraud Manager as the leading payment card fraud solution, and a leading omni-channel communications solution as well.
The $3.82B Company trades 29.7X Earnings, 4.6X FY17 EV/Sales and 23.76X FCF with a Revenue CAGR of 7% since 2011, EPS CAGR of 13%, and an outlook for 5-6% annual revenue growth and EPS growth of just 4.7% in 2017, but seen accelerating to 21.6% and 16% in 2018/2019. FICO has also been active with share buybacks reducing its shares outstanding by more than 50% since 2005. Credit card issuance and consumer lending are closely tied with the legacy products. Mortgages make up a smaller part of the pie around 10-15%, and similar for Auto Loans. Discover (DFS) noted a surge in consumer lending in its earnings call.
Its closest competitor is Experian, which trades in London. Experian posted earnings on 1-17 and maintained its outlook, but weaker growth in its major markets was cited with Decision Analytics -3% Y/Y in North America. At 4.67X EV/Revenues, Experian trades in line with FICO but with weaker growth. Other competitors in the space include Equifax (EFX), Dun & Bradstreet (DNB), TransUnion (TRU), and Axxiom (ACXM). ACXM looks cheap to peers at 2.2X EV/Sales but EBITDA margins are inferior. Equifax (EFX) is the margin leader and a ROIC leader at 21%.
Analysts have an average target of $125 on shares and short interest is 2.9% of the float, falling 26.7% over the last 3 months. Barclays downgraded shares in September to Equal Weight with a $135 target, but overall the name sees little coverage.
On the chart, shares have been in a powerful trend for a few years, the most notable breakout came in 2016 when shares cleared the $96 level out of a 1 year consolidation, and that trend move took shares to $132 before pulling back in late September and testing the rising 200 day MA and holding the 38.2% Fibonacci perfectly as support at $111.70. Shares have pulled back to the 20 day EMA into earnings and also a major volume bar of support at $123, a rising channel forming and shares recently rejected at a major volume bar of resistance, the $127-$129 zone needed to be cleared for a run to new highs. FICO is entering a strong seasonal set-up as well with a 5 year average return of 10.9% in Q1 with February and March the strongest, the latter positive the last 5 years in a row.
FICO is a high quality name and should be able to post another solid quarter.
Ralph Lauren (RL) will report earnings on Thursday before the open with the Street looking for $1.71 on $1.82B in sales, a 7.8% decline Y/Y, and next quarter guided to $1.86 and $1.71B. The FY guidance is at $5.43 on $6.66B in sales, a 10% decline. RL has had a positive run of earnings over the last year closing higher three of the last four reports. RL has a six-quarter average move of 8.8% with a maximum move of 22.2% and a minimum move of 1.5%. The market is pricing in around an 8.8% move this quarter, in line with recent pricing, with skew 0.6%. The $8.12B apparel company trades at 16.76X earnings, 1.11X sales, and 2.3X book with a 2.03% dividend yield. RL saw sales decline in 2015 for the first time in four years and expected to fall 10% in 2016 and down 1.5% in 2017. EPS is growing after years of declines up 16.8% in 2016 and expected to grow 8.3% in 2017 to $5.88. RL saw wholesale sales down 5% last quarter with N. America weak while retail sales fell 3%. Gross margins were better than expected up 130 basis points with a better sales mix and moderated promotions and seen bottoming this year after hitting their lowest levels since 2009. RL has been undergoing a big shift in management with new CEO Stefan Larsson taking over in 2015 and streamlining a lot of the organization with several higher-member executives departing the company. Larsson is expanding the company in Asia while N. America and Europe remain soft. Analysts have an average target for shares of $110 with 7 Buy ratings and 15 Hold ratings. Goldman Sachs upgraded shares to Conviction Buy on 10-7 with a $120 price target seeing the turnaround in place and expecting a major drawdown in inventory over the next four quarters. The company should see cost-savings from restructuring as well. CSLA started shares at Buy with a $125 price target on 9-28. Institutional ownership rose 0.88% in recent filings with Hoplite Capital adding 570,338 shares and Southeastern Asset Management buying a new 2.7M share position. Short interest is 9.48% and down from 12.4% in June.
Norwegian Cruise (NCLH) will report earnings on Wednesday before the Open with the Street looking for $1.59 on $1.49B in revenue, a 15.7% increase Y/Y, and looking for next quarter at $0.57/$1.12B. The FY estimate is for $3.38 on $4.87B in sales, a 12% gain. NCLH has a weak history of performance on earnings closing lower four of the last five reports. The average five-quarter move is 6.42% with a max move of 11.8% and a minimum move of 4.2%. The options market is pricing about an 8.5% move for the quarter with skew 0.4%. The $8.47B cruise liner trades at 9.5X earnings, 0.55X PEG, and 1.85X sales. NCLH has seen sales grow each of the last four years but growth rate falling to 12.1% Y/Y in 2016 and 8.8% in 2017 to over $5.3B. EPS is growing at double-digits and expected to hit $3.88 by 2017. NCLH missed on sales last quarter but beat on EPS with passenger ticket revenue higher by 3.87%, onboard revenue up 23.84% and operating margins fell 90 basis points. Occupancy rates fell 210 basis points. The company weighted a lot of guidance to the 2H of the year with the launch of the Sirena and the Seven Seas Explorer on 7-13 and strong calendar of N. American sailings. European trends likely continue to be the most important to watch, weak most of 2016 and Brexit and terrorism remain headwinds for demand. Analysts have an average target of $50.70 for shares with 11 Buy ratings and 6 Hold ratings. JP Morgan downgraded to Neutral with a $44 price target on 10-27 and Sun Trust cut shares to Hold with a $43 target noting pricing went to negative 1.5% in September from +1.3% in August and has decelerated every month since April. Wells Fargo was out positive on the sector on 11-1 noting investors are regaining confidence in the group following RCL’s results. Institutional ownership rose 1.39% in recent filings. Apollo is the top holder with over 36M shares. Short interest is 6.66%.
Take-Two Interactive (TTWO) will report tonight after the close with the Street looking for $0.29 on $401.9M in revenue, a 10.2% jump in sales versus 2015. Next quarter is guided to $1.04/$650.1M and FY estimates are for $1.23 on $1.64B, a 5% increase in sales. Shares have closed higher each of the last four reports with an average four quarter move of 4.25%, a max move of 6.9%, and a minimum move of 2%. The market is pricing in an 8% move on earnings. The $3.8B gaming company trades 17.9X earnings, 2.64X sales, and 3.22X cash. TTWO saw sales growth of 30% in 2015 and expecting 16% Y/Y growth in 2016 and 24.4% growth in 2017 to over $2B. The company saw 13% sales growth in August quarter with GTA V, GTA Online, and NBA 2K16 the biggest contributors. Digital revenue rose to $172.1M with consumer spending from add-on content up 18%. GTA online was the biggest driver of in-game buys. During the quarter, TTWO released Battleborn, Tales from the Borderlands, and Evolve Stage 2. The company has a strong slate for the Holiday season including Mafia III, NBA 2K17, and WWE 2K17, the latter two big drivers of user engagement. Sid Meier’s Civilization was released on 10-21 and receiving strong critical reviw. Shares jumped on 10-18 when the company teased the release of Red Dead Redemption 2, the much anticipated sequel, due out next year. Analysts have an average target for shares of $45.85 with 11 Buy ratings and 4 Hold ratings. Oppenheimer initiated coverage on 10-14 with a $54 price target while Piper was out positive on 10-6 as their internal survey noted higherewsthan expected adoption rates for RDR 2 and starting their initial estimate was at 17M. They were also out with a note on 10-14 seeing the company as the biggest winner in NPD September sales with NBA 2K17 leading. Credit Suisse keeps shares at a Neutral rating, $41 target, noting that 2016 and likely the first half of 2017 are trough years before RDR 2 in late 2017 and a GTA sequel in FY20. They see potential for higher marketing and promotion into the holiday season with Mafia III and Evolve Stage 2. Institutional ownership rose 2.75% last quarter with notable buys from Paulson of 1M shares and Point72 of 878,800 shares. Eminence Capital is a top ten holder with 3.8M shares, their 11th largest. Short interest is 14.35% of the float but down sharply since early 2015 when it was close to 25%.
KapStone Paper (KS) will report tonight after the close with the Street looking for $0.39 on $802.28M in sales, a slight decline Y/Y with next quarter at $0.30/$770.95M. The FY view is looking for $1.19 on $3.1B, an 11.3% increase from 2015. Shares have closed mixed over the last six sessions with an average absolute move of 8.6%, a max move of 30.5%, and a minimum move of 2.3%. Options are pricing in greater than 11.5% move on earnings, in line with the straddle pricing the last three quarters. Skew is -0.2%. The $1.74B paper company trades at 12.3X earnings, 0.56X sales, and 2.02X book with a 2.21% dividend yield. KS is looking for continued sales growth in 2016 and 2017 but slowing to 11.1% and 3.9% Y/Y growth. EPS is expected to grow 7.2% in 2016 and 23.5% in 2017 to $1.45 per share. KS has been a very acquisition focused company since 2007 and recently bought Victory Packaging in 2015 for $615M which has expanded their footprint across the U.S. KS is looking for $30M in synergies from the deal and reducing exposure to export markets. The company is focusing on accelerating cash flow while paying down debt. The company is the 5th largest containerboard producer in the US and should benefit from recent price hike to $50/ton. Analysts have an average target for shares to $20.75 with 6 Buy ratings, 3 Hold ratings, and 1 Sell rating. BAML upgraded shares to Buy on the improving outlook for containerboard, a strengthening kraft market, and uptick in PPI. The firm has a $24 price target. On 9-23, Deutsche Bank upgraded shares to Buy with a $23 seeing the Oct. price hike initiative being a major tailwind for the group in 2017. Institutional ownership fell 1.95%, Fiera Capital a notable buyer of 1.6M shares and Point72 also adding to their position. Paradigm Capital is a top holder. Short interest is 5.1%. On the chart, shares have been in a strong uptrend since June and pulling back to the rising 50-EMA and cloud support at $18.
O’Reilly Auto Parts (ORLY) will report today after the close with the Street looking for $2.92 on $2.22B in sales, a 6.9% gain Y/Y with next quarter looking for $2.56 on $2.09B. FY guidance is at $10.73 on $8.59B in revenue, 7.8% growth. Shares have closed higher seven of the last nine reports with an average absolute move of 4.67%, a max move of 8.1% and a minimum move of 1.5%. The market is pricing in a 5.4% move for earnings, slightly lower than prior quarters. Skew is 25.9% and above the 52-week average of 17.3%. The $26.4B company trades at 22.74X earnings, 3.19X sales, and 15.9X book, slightly rich compared to peers AAP and AZO. The company missed estimates last quarter with comps at 4.3% and margins at 19.5%. Inventories rose 2.2% per store and slightly above the annualized rate the company is targeting for 1.5%. The company raised FCF guidance to $800-$850M. ORLY has been a strong growth name over the last three or four years but falling victim to higher expectations and plateauing, but consistent, results. ORLY could see a negative read-through from Genuine Parts (GPC) report which showed a tough sales environment and cut their automotive view to 1-2% growth. Analysts have an average target for shares of $303.50 with 13 Buy ratings, 2 Hold ratings, and 1 Sell rating. Susquehanna initiated coverage at Positive on 8-25 with a $343 price target while UBS was out defending shares following last quarter’s miss noting the majority of the slowdown was likely weather related and still was above the company’s guidance. The company also noted that while Amazon’s emergence in auto parts may be a long-term issue, the risk is not imminent and continues to see avenues for margin expansion at ORLY. Institutional ownership fell 1% in recent filings with Two Creeks Capital a notable buyer of shares, more than 600,000, and Eton park adding a new 394,000 share stake. Short interest is 6.41% of the float, rising steady since July 2014.
Edwards (EW) will report earnings after the close today with the Street looking for $0.68 on $749.14M in revenue, a 21.5% increase Y/Y. Next quarter is guided to $0.74/$801.14M and the FY is at $2.88/$3B. Shares have closed higher the last four reports and nine of the last eleven, an impressive streak. The average six-quarter closing move is 3.43% with a max move of 8.3% and a minimum move of 0.1%. The options market is pricing in a 7% move for earnings, lowered expectations relative to recent quarters. The $25B medical equipment company trades at 34.19X earnings, 9.1X sales, and 23.5X cash. EW is expecting 20% sales growth in 2016 and 12.3% growth in 2017 to over $3.35B with EPS gaining double-digits each year to over $3.40. EW is the dominant player in heart valve therapies with the majority of patients in the US but also Europe and Japan. The company sees the global TAVR market growing to $5B in 2021 and their Sapien 3 continues to receive expanded indications which will help growth EW’s TAM. EW had 23% sales growth in July with THVT up 49% and guided to hit $1.5-$1.7B amid strong therapy adoption. Margins are near 73-74%. Analysts have an average target for shares of $117.50 with 20 Buy ratings, 5 Hold ratings, and 1 Sell rating. JMP raised their price target to $130 in July and Morgan Stanley has a Street High $140 target. JP Morgan was out positive on 10-5 noting their fourth survey of cardiologists and surgeons continued to show the TAVR market accelerating and raising their estimates for the group to $5.1B. Institutional ownership fell modestly last quarter Millennium Management and Healthcor notable buyers. Sands Capital is a top holder with 9.6M shares. Short Interest is 1.79% of the float. On the chart, keys areas to watch will be the recent resistance of a multi-month range at $121.75 and the September lows at $113.50. The 20-week EMA at $112.50 would be notable support on weakness, a spot where shares found support in June.
Skechers (SKX) will report earnings after the close with the Street looking for $0.47 on $954.38M in revenue, an 11.5% increase Y/Y. Next quarter is being guided to $0.23 on $799.91M and FY is at $1.80/$3,610. SKX has closed higher seven of the last nine reports with an average absolute move of 9.6%, a max move of 31.5%, and a min move of 3.9%. The $3.6B footwear company trades 11.3X earnings, 1.05X sales, and 2.32X book. SKX has seen revenues climb every year since 2012 but growth falling to just 14.3% in 2016 and 10.8% in 2017 as revenues climb to $4B. EPS is targeted to grow 18.4% in 2016 and 14.4% to 2017, over $2 per share. The company missed expectations in July with sales growth of 9.7% including significant growth in International. Investors are worried that SKX earnings have peaked as revenue had grown 20%+ in each of the prior quarters with domestic wholesale pressuring results. The company should continue to see gross margins improve with the shift away from wholesale. The company saw orders from Dicks and others fall for the Back to School segment so key to see any commentary on the time period and potential Holiday ordering. SKX is facing tougher competition in sports footwear from Adidas and Under Armour which is rapidly growing in the space. SKX plans to open 200 new stores and expand overseas which could position it long-term for success. Analysts have an average target for shares of $28 with 11 Buy ratings and 6 Hold ratings. Standpoint initiated coverage at Buy on 10-3 with a $30 price taret and Susquehanna upgraded to Positive with a $27 PT on 9-30. Citi was out positive on 10-13 noting that the reward/risk is compelling but conservative on an overall tepid back to school season. Cowen was out on 9-22 noting that domestic wholesale and retail will likely pressure sales growth in 2017 but downside is limited. Morgan Stanley downgraded shares to Equal Weight in September noting consumer trends away from aesthetic footwear and leading the company to adjust assortment which will slow sales growth. Institutional ownership fell 3.4% last quarter with short interest at 8.19% and down from nearly 11% in May. SKX has notable open interest in the November $22 puts from 10-17 and the October 28th (W) $21.50 puts opened 2,500X on 10-17. On 9-21, the January $20 calls were bought over 3,000X.
Xilinx (XLNX) will report earnings tonight after the close with the Street looking for $0.55 on $574.94M in revenue, 9% increase Y/Y with next quarter guided to $0.52/$584.52 and FY at $2.22 and $2,34B. XLNX has closed higher four of the last five reports with an average absolute move of 4.46%, a max move of 8.7%, and a min move of 0.5%. Options are implying a 4.5% move on earnings this quarter, in-line to slightly below the recent average. The $12.68B semiconductor trades 21X earnings, 5.6X sales, and 3.6X cash with a 2.63% dividend yield. XLNX is targeting 5.7% sales growth this year and 5.1% growth in 2017 with EPS up 7.2% Y/Y in 2017 to $2.38. Analysts have an average target for shares of $50.50 with 4 Buy ratings and 13 Hold ratings. Baird downgraded shares to Neutral on 10-12 with a $52 PT noting weakness in lack of upside to 2017 estimates while Keybanc was out positive on 10-18 noting the company can benefit in the coming quarters from a rise in N. American CapEx despite an overall slowing in demand from Chinese wireless firms. XLNX has exposure to some trends including 5G wireless, industrial IOT, and cloud with market exposure to aerospace, automotive, and consumer as well. In July, revenues grew 5% with strength in Communications/Data and weakness in Industrial down 8%. Gross margins rose to 70.7% from 69.2%. Advanced products which includes UltraScale+ and 7-Series products for data centers grew 60% last quarter. XLNX guided to a flat quarter in October with gross margins at 70%. On 10-12, the company announced it had reached an open order milestone for Ultrascale+ ahead of schedule and less than 1 year after first ship. XLNX has been mentioned as a top M&A candidate in the space given their gross margin strength and attractive markets with Qualcomm reportedly talking to the company earlier this year before approaching NXP Semi in a formal manner. Institutional ownership rose 1.16% last quarter with Blue Harbour a top holder of 7.7M shares. Short interest is 4.79% of the float. XLNX shares fell recently with tech weakness but back to a big breakout area at $48.50 from July. The 50-EMA above is at $52.
Genuine Parts (GPC) will report earnings on Wednesday morning before the Open with the Street looking for $1.29 on $4.03B in revenue, 2.6% Y/Y growth, with next quarter guided at $1.10/$3.84B and FY at $4.73/$15.47B. Shares have closed lower the last two reports and four of the last six with an average move of 1.83%, a max move of 3% and minimum move of 0.1%. The implied move for the quarter is 3.1%, lower than the implied straddle for each of the last six quarters. The $14.52B company trades at 19X earnings, 0.95X sales, and 4.5X book with a 2.69% dividend yield. Sales are expected to grow 1.2% Y/Y in 2016 and 3.6% in 2017 over $16B. EPS is expected to grow 1.7% in 2016 and 8% in 2017, up over $5. The company operates with four different business groups, Automotive Parts comprising 52% of sales, Industrial 30%, Office Products at 13% and Electrical at 5%. The company has seen sales growth steady since 2010 but plateauing in 2015 and looking to re-accelerate. The company’s auto group is primarily commercial/DIFM focused with over 70% of sales. The company benefits from the aging vehicle popular with the majority of total vehicles on the road over six years old and rising gas mileage driven each year. GPC has 8-9% of the market shares and expanding new stores and distribution to help edge that number higher. They’re also using acquisitions to build their industrial business in targeted industries such as Water Waste Treatment and Power Generation. GPC reported a flat quarter in July with the sales environment, “challenging” and guiding to 2-3% growth in automotive. On 10-5, the company announced a deal to buy Braas Company, a distributor of automation and control products. GPC is targeting 8.5-9% margin expansion in 2016, continuing three-year trend of improvement Y/Y. Analysts have an average target for shares of $98 with 1 Buy ratings, 7 Hold ratings, and 2 Sell ratings. Susquehanna initiated coverage at Neutral in August with a $102 price target. Institutional ownership fell 1.15% last quarter, Gabelli a top holder with more than 1.6M shares. Short interest is 2.24% of the float. On the chart, shares have traded back under the cloud support and 20-EMA at $98.75 but holding above the September lows at $96. Shares are trading in channel and weekly bull flag under all-time highs.
Constellation Brands (STZ) will report earnings Wednesday before the open with the Street looking for $1.65 on $1.96B in revenue, a 12.9% jump in revenue Y/Y. Next quarter is guided to $1.71 on $1.83B and FY at $6.30/$7.31B. Shares have made an average post-earnings move of 4.175% over the last four quarters with a max move of 5.9% and a minimum move of 2.5%. Shares have closed higher six of the last seven reports. The straddle is implying a roughly 4.7% move this quarter. The $32.64B spirits company trades at 23.3X earnings, 4.8X sales, and 4.8X book with a 0.97% dividend yield. STZ is expecting to see 11.9% sales growth in 2016 and 7.5% Y/Y growth in 2017 with EPS growing 16.4% and 12.8% respectively. STZ saw strength in beer last quarter up 19% Y/Y with strong volume growth, up 14.3%, and pricing. The company is guiding to mid-single digit growth in wine and 14-17% growth in beer for the FY17. Analysts have an average target for shares of $174 with 13 Buy ratings and 6 Hold ratings. Credit Suisse initiated coverage on 9-15 with a Neutral rating and $178 price target, seeing the company positioned well to continue taking advantage of the growing consumer trend favoring craft and import beers. They see the long runway for growth however nearing its peak and sees a few risk (talent flight, plateauing growth) from their $1B Ballast Point acquisition. RBC took shares off the Focus List on 9-28 seeing a short-term pause and expectations already high into the report looking for another beat/raise quarter. Morgan Stanley has been a lone bull recently seeing margins in beer improving and the company’s wine business as an underappreciated asset. They raised their target to $191 from $184. Institutional ownership fell 0.64% for the quarter with Pointstate a notable buyer of nearly 1M shares and Eminence Capital starting a small stake. Lone Pine Capital remains a top holder with 6.6M shares and Third Point with 2M shares. Short interest is 2%. On the chart, shares have been in a narrow range since last earnings gap higher, trending between $168 and $161 with a breakout measuring to $175. On Monday, the October $170/$175 call spread opened 3,000X6,000 for $0.525 and on 9-19 the October $165 calls opened over 1,000X for $3.50 to $3.60.
Bed Bath & Beyond (BBBY) will report earnings after the close with the Street looking for $1.17 on $3.05B in revenue, a modest 1.9% increase Y/Y. Next quarter is guided to $1.01/$3.03B and the FY view is for $4.84 on $12.32B. BBBY has closed higher the last four reports with an average move of 0.725%, a max move of 1.51% and a minimum move of 0.28%. BBBY is pricing in about a 5.5% move which is in-line with the average pricing dating back to Q3 2015. BBBY has faded each of the last four earnings moves higher and down on average 2.56%. The $6.6B retailer trades 8.54X earnings, 0.55X sales, and 2.59X book with a 1.16% dividend yield. Sales grew 1.9% Y/Y in 2015 and expected to grow 1.9% this year as well before growing 3% in 2017. Earnings are expected to fall 6% in 2016 but rebound 4.5% in 2017. E-commerce has become a major focus for the company who has invested in online growth but having trouble recovering sales with foot traffic declining. This transition likely opens up a higher promotional environment which could impact results. BBBY also reported a slight impact last quarter from wage increase which are likely to remain persistent. Analysts have an average target for shares of $50.40 with 2 Buy ratings, 19 hold ratings, and 7 Sell ratings. Credit Suisse was out on 9-12 expecting weak results with comps at -0.5% and margins down 100 bps. They don’t however see any major surprises given the low valuation. Oppenheimer was out defending in June following earnings. The firm sees BBBY continuing to be a margin leader but the transition into more e-commerce will likely lead to choppiness in results quarter-to-quarter. Institutional ownership fell 0.91% in recent filings. Short interest is 9.38% and down from 11.55% in June. On the chart shares have in a range between $46 and $41 since early May and finding a base above $42 recently. BBBY has 4,000 November $42.50/$55 call spreads in open interest from 6-2.
Jabil Circuit (JBL) will report tonight after the close with the Street looking for $0.25 on $4.27B in revenue, a decline of almost 9% Y/Y. Next quarter is guided for $0.63 on $4.89B and FY at $1.83/$18.19B. Shares have closed lower three of the last five reports with an average move of 5.18%. Shares are pricing in around an 8.8% move for earnings, slightly higher than the prior two reports. The $4.42B electronics maker with end-market exposure to automotive and consumer products including the iPhone trades at 11.4X earnings, 0.24X sales, and 1.78X book with a 1.38% dividend yield. JBL topped estimates in June and announced a $400M buyback, weakness in their mobility business but mostly expected with the iPhone 6S sales pressure ahead of the iPhone 7 launch. The company guided weak but could see a rally with recent order information on the new iPhone coming from TMUS, S, and T. Analysts have an average price target for shares of $32.50 with 6 Buy ratings, 5 Hold ratings, and 1 Sell rating. Goldman Sachs upgraded shares to Neutral on 9-20 with a $21 price target noting key customer data points are improving and consensus estimates are too low. JBL will host an Analyst Day on 9-27. Raymond James raised shares to Outperform in July with a $26 price target seeing improving FCF (doubling by 2018 to $3) and positive on their capital return plans. The firm notes that with fundamentals improving any tailwind from Apple (roughly 25% of sales) should help improve long-term clarity. Institutional ownership fell 2.46% in recent filings, Fairpointe Capital a notable holder with 6.7M shares. Short interest is 4.15% of the float. JBL had buyers of 1,900 October $23 calls on Monday at $0.90 to $1.05. On the chart, JBL shares have been largely range bound since 2012 with resistance up at $25.
Veeva Systems (VEEV) will report earnings after the close with the Street looking for $0.13 on $126.57M in revenue, 29% growth Y/Y. Expectations for next quarter are for $0.14/$133.03M and FY estimates are for $0.57 on $518.26M. VEEV has beaten on the top and bottom line for ten straight quarters. Shares have closed higher each of the last four quarters with an average move of 6.18%, a max move of 9.44% and a minimum move of 2.71%. The implied straddle is pricing around an 8.5% move for the quarter, the lowest implied move since December 2013. The $5.22B provider of cloud services for healthcare and life sciences companies trades at 53.49X earnings, 11.89X sales, and 9.77X book with no debt. The company saw subscription revenues rise sharply (+39%) with both commercial cloud and their new venture vault growing and their professional services business rose 12.9%. Vault is particularly interesting given that it expands their reach outside of life sciences and healthcare so potential for surprise with the expansion. The company attributed a lot of strength in Q1 to elevated bookings including a number of deals disclosed earlier in the year than expected. VEEV raised guidance to $125.5-$127M. VEEV has benefitted from a number of larger cloud players losing share in the space with Oracle showing notable Y/Y declines in their CRM for Life Science business. Analysts have an average target for shares of $36.80 with 6 Buy ratings and 6 Hold ratings. Raymond James initiated coverage on 8-24 with a Market Perform rating and Citi raised their price target to $40 on 8-23. Leerink was out positive in May noting broad based strength in their portfolio and JP Morgan out noting that while 62% billings growth likely isn’t repeatable, their momentum across all geographies should sustain solid returns for several quarters. On 6-9, VEEV announced GlaxoSmithKline had expanded their use of the company’s Commercial Cloud applications and also adding Veeve Approved Email. Institutional ownership rose 8.24% in Q1 filings, 1832 Asset Management a notable buyer of 1.1M shares and Fiera Capital starting a new 826,087 share position. Brown Capital is the second largest holder with a 7.2M share position, their 11th largest and a 3.9% weight. Short interest is 10.75% of the float but relatively flat over the last two years and down from over 50% in late 2015. On the chart, shares have been very strong since April with support at $37, the rising 50-MA, and $34 which is the 38.2% Fibonacci retracement. A move over $40 measures to $42.50 short-term. Below is the Optionshawk Database snapshot.
Realogy (RLGY) will report earnings Thursday before the open with the Street looking for $0.77 on $1.71B in revenue, 3.7% Y/Y growth with FY estimates at $1.71/$5.98B. Shares have closed lower four of the last five reports with an average absolute move of 5.0%. The $4.32B property management company trades at 13.46X earnings, 0.75X sales, and 9.14X FCF with earnings growth of 20%+, the lowest valuation since the IPO in 2013. The company reported 6.6% sales growth last quarter with transaction volume up 6% and ASP up 20%. RLGY guided to 3-7% growth in Q2 with ASP flat. RLGY is the largest owner of residential RE brokerages, mostly Coldwell Banker Burnett and involved in 6-7% of existing home sales which have risen steadily since February. Inventories have been rising as well since December. The company may see headwinds from home appreciation rates falling in Q1 and lower volumes in high-end markets, particularly East and West Coast. Analysts have an average target for shares of $41 with 6 Buy ratings and 5 Hold ratings. On 7-25, Keefe Bruyette upgraded shares to Outperform with a $36 price target and Stephens upgrading shares on 7-12 to Overweight with a $37 price target with valuation attractive and concerns about price mix overblown. Institutional ownership fell 2.73% in Q1 filings, Edgepoint buying 2.2M shares to bring their stake to 9.3M, their 3rd largest position. Marcato started a new 1.635M share position as well, their 7th largest, and rumors recently they were looking to raise their stake and become more active with management. Glenview Capital owns 6M shares. Short interest is 1.98% of the float, down steady from October 2014 when it was near 6%.
RLGY has seen mostly bullish flow into the report with over 7,000 August $30 calls, 3,000 September $30 calls, and 8,000 September $32.50 calls in open interest. On Tuesday, traders sold 5,000 March 2017 $22.50 puts to open at $0.55 and also 2,500 January $25 puts sold to open at $0.75 to $0.80
Kate Spade (KATE) will report earnings on Wednesday before the open with the Street looking for $0.14 on $318.55M in revenue, a 16.8% Y/Y gain with FY estimates at $0.78 and $1.41B. KATE has shares closed lower by 2.19% last quarter but higher each of the prior three with a four-quarter absolute average move of 6.45%.
The $2.77B maker of handbags and apparel trades at 20.19X earnings, 2.2X sales, and 10.63X cash with 27.75% earnings growth. KATE trades at a slight premium to peers given its higher growth profile and has solid margins vs the rest of retail (although trails Coach (COH) within the space). KATE saw 9.1% Y/Y sales growth in 2015 and looking for 13.5% growth in 2016 and 12.8% growth in 2017. The company saw 17.9% growth in N. America and 3% growth in International last May. Japan outperformed last quarter but seeing slower tourism from China. Hong Kong and Macau remain challenging but could see an uptick with some positive commentary in the region recently regarding tourism. KATE has been investing in e-commerce and mobile which are expected to be key drivers going forward and seeing DTC sales up 19% in May. The company noted last quarter they went more promotional through this channel due to rising competition, so something to watch during the call.
Analysts have an average target of $28.75 for shares with 10 Buy ratings and 6 Hold ratings. William Blair initiated coverage on 7-12 at Outperform. Two sell-side notes recently have highlighted demand for innovation in handbags to spur buying. On 7-15 Sun Trust noted that the group will likely wane without a some “newness” into the space, Coach being most on-trend and Kate Spade and Michael Kors behind. Cowen was out cautious on 7-21 noting that new products are sluggish yet the customer has a strong appetite for the right design. The firm thinks KATE is best positioned given their e-commerce, pricing, and distribution strategies. Citigroup added shares to their US Focus List in April with a $32 price target as the company continues to take share from peer Coach while Buckingham was out positive noting that the company’s free cash flow growing at 10% and double-digit sales forecast should help its multiple expand. They have $31 price target for shares. KATE short interest is 9.29%, down from almost 14% in March and well off 5-year highs over 30% in 2012. Institutional ownership fell 1.51% in Q1 filings.
KATE has primarily bullish open interest with over 8,000 August $20 calls and over 2,000 each of the October $21, $22, and $23 calls still open. On 7-12, a large spread sold 20,000 August $25 calls to buy the $22/$20 put spread, likely protective of long stock and willing to be called away. The full OptionsHawk Database snapshot is below.
Las Vegas Sands (LVS) will report after the close with the Street looking for $0.56 on $2.76B in revenue, a 5.5% decline Y/Y, and FY estimates at $2.30 on $11.39B. Shares have closed lower four of the last six reports with a six-quarter average absolute move of 2.87%. Shares dropped 9% last quarter with Macau remaining challenging but seeing signs of stabilization. Marina Bay in Singapore was hit by FX headwinds and the company’s Las Vegas properties showed a 10% gain in RevPAR. LVS is a leader on the Cotai Strip and adding The Parisian Macao later this year, set to open in September which should be a positive catalyst. Macau July data showed a drop of 8.5% in revenue, the 25th month of declines, but lower than forecast. VIP remains weak as well and some concerns that Euro 2016 during the quarter could lead to overall softness in games. The $37.12B casino trades at 18.2X earnings, 3.26X sales, and 21.89X cash with a 6.09% dividend yield. Earnings are expected to remain under pressure with Macau weakness, down 3-4% over the next five years. Analysts have an average target for shares of $51.50 with 8 Buy ratings and 9 Hold ratings. On 7-5 Bernstein was out positive seeing a new ban in the Philippines on online gambling adding a marginal tailwind to Macau casinos which should benefit. Institutional ownership fell 1.59% in Q1 filings, Jericho Capital adding 1.4M shares and Northern Cross raising their stake to 36M shares. Short interest is 3.16%, down steady from July of 2015 when it was over 6%. On the chart, shares have consolidated the gap down from April’s earnings and nearing a move over resistance at $48.50 with a gap to fill back to $52. Support below is at the rising 50-EMA at $46.25 and then $42 is major support from the Brexit fallout.
Danaher (DHR) will report Monday before the open with the Street looking for $1.22 on $5.76B in revenue, 12.3% growth Y/Y and FY estimates at $4.29 on $19.72B. Shares have closed higher the last four reports and five of the last six with an average absolute move of 1.68%. The $55.96B industrial trades at 21X earnings, 2.6X sales, and 2.28X book with a 0.79% dividend yield. Revenue growth is expected to be 11.5% in 2016 and 4% in 2017 while EPS is expected to be in the high-single digits. DHR is a gross margin leader in the space and using their strong FCF to build through M&A and drive multiple expansion. The company recently spun off its industrial tech and measurement business into a new company, Fortive, and the first report since the move so key to hear management discuss a future path and areas to focus on, especially areas they see as fruitful for M&A. The company closed their $13.8B acquisition of Pall Corp last summer and targeting $300M in cost synergies from the deal. DHR sold off a bit last year on concerns about China and emerging market weakness but seeing strength in India helping counter-act some of the lower demand in other areas. The company also has end-market exposure outside of transitional industrial spaces building in healthcare, life sciences, medical and markets. The company beat top and bottom line in April, 14.9% revenue growth. Analysts have an average target for shares of $98.50 with $10 Buy ratings and 7 Hold ratings. Bernstein upgraded shares to Outperform on 6-23 with a $120 PT. UBS was out positive on 7-13 with a $92 price target seeing room for margin expansion with an increase in the company’s less cyclical businesses and potential for smaller, bolt-on acquisitions in the near-term. The firm thinks DHR may look to smaller deals with potential for higher return profiles in the next 6 months. Jefferies has a $92 price target for shares and recently out recommending shares be bought as the company’s new focus as a cleaner play on healthcare opens it up to an entirely new investor base. Institutional ownership rose 0.58% in Q1 filings. Third Point was a big buyer of shares, adding 1.45M to bring their stake to 3.7M, a 3.23% weighting and their 8th largest. Winslow Capital is a top holder with over 6.4M shares. Short interest is 1.31% of the float, steadily declining since July 2015. On the chart, shares have been in a strong trend higher recently off the $62 level in January and forming a tight bull flag above the 8-EMA at $81 and an overall very bullish chart with shares rarely giving a major dip to buy since 2009. Major support on a pullback would be the recent breakout level at $76 with a breakout above measuring to $84-$85. DHR has seen mostly bullish activity in the options with 10,000 January $90 calls bought on 7-20 and 6,000 March 2017 $90/$100 call spreads in open interest as well, an attractive long-term play.
Mattel (MAT) will report earnings tonight after the close with the Street looking for a loss of $0.05 on $938.10M in sales, 5.2% decline Y/Y with FY estimates looking for $1.37 on $5.54B. MAT shares have closed higher four of the last six reports but down in April over 5%. Shares have an average move of 6.9% although skewed slightly by a 13.05% move in February. The $11B toy and game maker trades at 18X earnings, 1.95X sales, and 4.45X book with a 4.70% dividend yield. Sales have fallen Y/Y the last two years but expected to show a shallower decline in 2016, down 2.7%, and turn positive in 2017 up 7.2%. EPS is expected to grow 27.8% in 2016 and 30.4% in 2017. MAT missed on the bottom line in April with FX headwinds pressuring International sales, down 11% but just 1% in constant currency. The company reports in four segments: Boys and Girls, American Girl, Fisher Price and Construction Arts & Crafts, the last two the only segments showing Y/Y growth in April. Barbie has been under pressure in recent years and the company doing a complete re-launch of the brands in 2015 which has seen mixed results in the last three quarters. American Girl continues to weaken and comes at a key time for MAT after losing the Disney license in 2016. Holiday POS and early Spring shipping data suggests Barbie is gaining traction and recent acquisitions of MEGA Brands and Hit Entertainment likely not enough to bridge the gap. MAT hopes to take advantage of a partnership with DC Comics. MAT also has licensing deals for the new Cars sequel (2017) and Toy Story (2018) and investing in entertainment-side of their Bob the Builder, Polly Pocket, and American Girl brands. On 7-19, the company announced a licensing deal for the Jurassic Park franchise. The company is guiding to 50% gross margins which would mean a strong 2H and any slowdown would likely lead to a FY cut. Analysts have an average target for shares of $34 with 9 Buy ratings and 6 Hold ratings. Jefferies was out positive in April noting that short-term margins are likely under pressure as the company turns around their core brands. Institutional ownership fell over 10% in Q1 filings, Renaissance Tech a large buyer of 1.5M shares and Tourbillion starting a new, small position. Fairpointe Capital is a concentrated holder with 4.4M shares, a 3.11% weight, and their 9th largest position. Short interest is 13% of the float but down from over 20% in October. On the chart, shares broke a nearly 2-year downtrend in December and shares forming a bull flag on the monthly with a breakout over $33.50 measuring to $37-$38. Support is at the rising 50-week EMA at $29.80.
Tupperware (TUP) will report earnings before the open on Wednesday with the Street looking for $1.11 on $559.91M in revenue, a 4.9% decline Y/Y and looking for $4.30 on $2.23B in revenue for FY16. TUP shares have closed lower four of the last five reports with an absolute average move of 7.83%, a maximum move of 14.59% and minimum move of 3.72%. The $2.29B company trades at 12.53X earnings, 1.32X sales, and 17.3X book with a 4.67% dividend yield. TUP has seen sales fall each of the last three years, down 12.4% last year although expected to be down 1.9% in 2016. The company has a lot of International exposure with some key markets undergoing big transitions including Brazil and China and results have been volatile. Management cut guidance in January with currency weakness in Indonesia and Mexico but saw growth in April in North and South America. Europe remains a drag, down double-digits both quarters this year. TUP unveiled recruiting and retention programs in January and aiming to help build their salesforce and looking to see results start to take shape, up 2% in January and 4% in April. The company will likely focus on cost-cutting initiatives to help the top line which has been weak with sales growth slumping. Analysts have an average target for shares of $58 with 2 Buy ratings, 4 Hold ratings, and 1 Sell rating. Keybanc downgraded shares in February seeing little upside to the company’s organic growth throughout 2016 with volatility in the US Dollar and Brazilian Real. Institutional ownership fell 3.21% in Q1 filings with Huber Capital a concentrated holder with a 3.61% weight and more than 1.5M shares. Short interest is 13.45% of the float, just below 10-year highs and rising steady since October 2014 when it was under 5%. On the chart, shares broke a long-term downtrend in March and basing between $45-$60 for almost a year. Shares are forming an inverted head and shoulders and over $60 measures back to $75.
Cintas (CTAS) will report earnings tonight after the close with the Street looking for $1.00 on $1.25B in revenue, 9% growth Y/Y with FY16 estimates at $4.03 on $4.88B. Shares have closed lower three of the last five reports, an average absolute move of 2.65% and a maximum move of 4.50% and minimum move of 1.42%. The $10.48B maker of corporate uniforms and garments trades at 22.7X earnings, 2.19X sales, and 5.4X book with a 1.08% dividend yield. Sales grew 0.2% in 2015 but expected to rise 9% in 2016 and 6.1% in 2017. EPS is expected to decline Y/Y over the next two years, four years of declines. CTAS has beat on top and bottom line each of the last three quarters but giving cautious guidance warning in December about sluggish sales for FY16. The company showed 6.1% growth in uniform rental and 11.9% growth in first aid. Uniform rentals continues to be a high-margin business at 17.9% last quarter. CTAS has been investing in an SAP system spending over $100M over the past two years to increase operational efficiency and last quarter announcing an expansion into e-commerce and distribution, an additional $40M charge in 2017 and $50M in 2018. CTAS has commented on a slight slowdown in their uniform business through general oil and gas industry weakness. They’ve been balancing weakness in their main verticals with new product offerings in hygiene and first aid markets. Analysts have an average target for shares of $93.50 with 4 Buy ratings, 5 Hold ratings, and 2 Sell ratings. KeyCorp upgraded shares to Overweight in April with a $106 price target seeing the company’s expanding Facility Services business producing above-average organic growth. Nomura started shares at Buy with a $102 price target. Morgan Stanley downgraded shares to Underweight in February seeing weakness in the macro environment leading to uniform wearer growth down to 2.5% from 3.1% and energy as a continued headwind in 2016. Short interest is 5.35% of the float up from 4.9% in April and steady with the 1-year average. Institutional ownership rose 1.31% in Q1 filings, 47 funds creating new positions, 161 adding, 41 closing, and 176 reducing. 7 funds hold CTAS in their top 10. Jasper Ridge is a concentrated holder with 3.79% weight.
Alcoa (AA) will report earnings tonight after the close, the Street looking for $0.10 on $5.2B in revenues, an 11.8% decline Y/Y. Next quarter is guided to $0.11/$5.27B and FY16 is expected to be $0.35/$20.56B. Shares have closed lower the last three reports and five of the last six. The average move has been 4.16%, though a bit high from a 9% sell-off in January. The $12.9B aluminum company trades 18.15X earnings, 0.60X sales, and 1.06X book with a 1.22% dividend yield. Sales are expected to fall 8.2% in 2016 after a 5.7% decline last year but rebounding to 4.4%
growth in 2017. The company is undergoing a separation with their faster growing automotive and aerospace businesses under the name Arconic and the Alcoa company housing assets in aluminum such as mining, smelting, and refining. The separation is likely to be the center point of the call and possibly limit any major move in shares. AA has suffered on the earnings front from weak pricing and eyeing any commentary about a turn in the cycle or bottoming although potential for weakness from a ramp in Chinese production by 4% in the 2H. Goldman Sachs was bearish aluminum pricing on 6-6 seeing $1,350 in one year. Analysts have an average price target for shares of $11.25 with 10 Buy ratings and 8 Hold ratings. Goldman Sachs initiated coverage on 5-19 with a Neutral rating and $9 price target. BAML upgraded shares to Buy on 5-23 with a $11 price target citing improvement in aerospace, 10% engine deliveries in 2016 and 18% in 2017. Institutional ownership fell 0.46% in Q1 filings. Elliott Associates is a top holder with 77.6M shares, a 7.8% weighting, and their third largest position. The fund gained board members in February. Orbis Allan Gray added 39M shares last quarter and OZ Management owns a $35M call position. Lion Point Capital is another concentrated holder with a 10.79% weighting. Short interest is 9.5% and down from over 15.3% in January.
growth. DATA has been aggressively pricing to keep big enterprise contracts but key to see how much impact new products have had their retention. Short interest is 10.72% of the float, down from mid-March when it was over 12.5%. Institutional ownership rose 3.18% last quarter, notable buys from Brookside Capital of 1.3M shares and Altimeter Capital. Tiger Global is a top holder with 2.3M shares and Matrix Capital who holds 3M shares, their third largest position and a 12.72% weighting. On the chart, shares have a big gap back to $75 from earnings last quarter and have shown some life since bouncing about 35%. May and June IV skew is fairly flat.
- Seller on 4/29 of 1,000 May 6th (W) $50 puts for $3.66
- Buyer on 4/20 of 10,000 May $55/$60 Call Spreads
- Buyer on 4/20 of 2,400 June $50 Calls for $4.10
- Buyer on 3/28 of 2,000 May $45 calls for $4.40
Zoetis (ZTS) will report Wednesday before the open with the Street looking for $0.41 on $1.1B in revenue, flat with the same quarter last year. FY16 estimates are for $1.78 on $4.75B, a modest decline. ZTS shares have closed higher five of the last six reports with one flat close. The average six quarter move is 2.49%. The $23.93B animal health company trades at 21.3X earnings, 5X sales, and 20.75X cash with a 0.79% yield and 12.75% earnings growth forecast by 2020. ZTS is guiding to $4.65B-$4.775B in sales by 2016 and $4.95-$5.15B by 2017. The U.S. contributed $636M last quarter, up 8%, with International at $624M, a 3% increase. Livestock products were weak, down 5%, primarily due to the timing of seasonal buying patterns. Sales of livestock products were strong Internationally up 2% led by Spain and Brazil. In March at the Barclays Global Health Conference, the company noted that Brazilian demand was continuing to be strong both in livestock and companion animal business. They also noted that strength was beyond the Macro economic uncertainty, especially in China. ZTS’s treatment for atopic dermatitis, APOQUEL, was released to much optimism by the company but underwhelming due to supply issues which the company is seeking to remedy. APOQUEL has been launching in new markets, so key to watch for how their meeting demand during expansion. ZTS sees $300M annual peak-sales possible. The company’s oral parasticide Simparica was recently approved in the EU and helps position the company in a crowded, competitive $3B market. In November, ZTS acquired PHARMAQ, a leader in vaccines and health products for aquaculture such
as farmed fish for $765M. ZTS could have positive read-throughs from both Bayer and Elanco, the animal health unit of Eli Lilly which showed solid growth for the quarter. On 2-17, BMO Capital was out positive on shares noting it sees 2016 as a transition year for the company with 24% EPS growth returning in 2017. Credit Suisse initiated shares Outperform on 2-4 as improvements in the company’s cost structure and capital help drive margin expansion by 9%. Analysts have a median rating for shares at $50 with 10 buy ratings, 4 hold ratings, and no sell ratings. Short interest is 1.62%, minimal although rising sharply recently from under 0.80% in late February.Institutional ownership rose 0.33% last quarter. Pershing Square remains the top holder of stock, their 2nd largest, with 41.8M shares. Two Creeks Capital started a new 2.5M share positon last quarter and Cantillion owns 2.25M shares as well. Q2 is seasonally the second strong quarter for shares up 7.84% over the last two years. May has been the strongest month of the quarter.
Mondelez (MDLZ) will report Wednesday before the Open with the Street looking for $0.39 on $6.44B in revenue, a 17% decline from last year. FY16 estimates are for $1.75 on $26.19B in revenue. MDLZ shares have closed higher four of the last six reports but down the last two and by more than 6% in February. The $65.35B packaged foods company trades at 20.94X earnings, 2.21X sales, and 2.4X book with a 1.61% yield but cautious debt to equity levels. MDLZ is modeling a drop of 12% in revenue for 2016 before stabilizing in 2017 and flat EPS growth. MDLZ shares have come under pressure recently with weakness in emerging markets, macro headwinds leading to fears of slowing global growth, but a massive long-term opportunity in the $1.2T snacks market, especially branded products. 40% of MDLZ’s revenue comes from EM. The company has been focusing on what it deems Power Brands, higher margin snacks with label power and shedding assets which have underperformed. In October, Reuters reported that the company was looking to sell its European Cheese and Grocery business which had $1.44B in revenues in 2014. The assets could find buyers in KHC or private equity. In early April, Citi removed shares from their Focus List. On 2-24, UBS was out positive on shares noting sales growth should exceed 2% this year with volume picking up in the 2H. Their 17-18% margin goal is very achievable with the cost-cutting program implemented. On 4-19, speaking on CNBC, Trian’s Ed Garden noted the company was making “great progress” on margins. Institutional ownership fell modestly last quarter. Pershing Square, a top holder, sold 20M shares in the quarter to lower their stake to 5.6%. They maintain a 23M share position. Pershing Square has been vocal with their stake pushing for change including the possibility of a sale to Kraft Heinz. Trian Fund remains a top holder with 48M shares. Short interest is nominal at 1% of the float. On a 5-year timeline, Q2 is the strongest quarter for shares up 6%. April is the best single month for shares with a 4.85% return.
Buffalo Wild Wings (BWLD) will report tonight after the close with the Street looking for $1.78 on $530.75M in revenue, a 20.5% jump versus the same quarter last year. FY16 estimates are for $6.10 on $2.14B. BWLD shares have closed higher four of the last six reports including a 7.6% jump last quarter. The $2.75B casual restaurant trades at 19.69X earnings, 1.5X sales, and 4.19X book. Forecasts are modeling 23% EPS growth in FY16 and 20% growth in FY17, a rebound from 2015 which came in flat YOY. BWLD was a prior high-flier with EPS growth over 30% in 2014 but under pressure with greater competition and higher input costs. Revenue is forecast to grow 18% in FY16 and 13% in FY17, continued deceleration as it has slowed each of the past three years. Chicken prices will be key to watch. The company noted on 2-3 that their average price for wings was $1.87/LB vs $1.92 the prior year, some relief. The company’s new pricing agreement for wings started in April 2016 so key to watch for commentary. Some peers noted a rise in cold storage for wings but BWLD noted it was likely inventory ramp ahead of the Super Bowl and not symptomatic of a larger theme. Another theme to watch will be wage inflation. The company noting in February that California’s minimum wage hike along with others has led to cost increases in successive quarters. At the March analyst day, BWLD forecast single-digit SSS and modest traffic hikes in 2016. SSS in 2015 rose 4.2%, ahead of the industry, and 2.5% at franchised locations. Short interest is 11.7% of the float, a 3.3 Day to Cover ratio. Over the last five years, Q2 is the weakest quarter for BWLD down 1.13% with April the weakest month of the year down 6.99%. BWLD has a median price target of $176.50 by analysts covering the stock, 14 buy ratings, 10 hold ratings, and 2 sell ratings. Shares were cut to Negative on 4-19 at OTR Global noting channel checks indicating Q1 SSS at company owned stores had deteriorated and tickets overall at both company and franchise stores was tracking below estimates.
Akamai (AKAM) will report today after the close with the Street looking for $0.63 on $564.10M in revenue, 7% growth versus the same quarter last year. FY16 estimates are for $2.70 on $2.38B, 8.3% growth. Shares have closed lower in three of the last four reports although jumping over 20% in February. Shares have a max move of 21.2% with a minimum move of -16.73%, an absolute average move of 8.87%.
The $9.06B tech company trades 16.5X earnings, 4X sales, and 2.9X book with almost $4.25 in cash per share on hand. The company is forecasting 14.5% EPS growth by 2020, targeting a 7% jump next year. Projections are implying 7% revenue growth in FY16 and 15% growth in FY17 after 4% growth in last year, a slight dip from strong double-digit growth in 2013 and 2014. The company has a long-term goal of $5B in revenue by 2020. AKAM is shifting strategy away from media and entertainment companies and into security services. The company’s CDN
services to major media companies has seen margins come under pressure and losing revenue as several develop in-house solutions. In February, AKAM posted a strong quarter, 8% revenue growth with Security (+16%) while Media Delivery fell about 2%. The company lost two major accounts to in-house CDN solutions (speculation it’s Apple and Facebook) which represented 13% of revenue and present a near-term headwind as security ramps. A major overhang remains other large names leaving including possibly Google who JPM notes is expanding their
own CDN beyond YouTube. JPM also highlights the possibility Google could compete for video clients long-term with AKAM. Other potential competitors include Amazon AWS and Verizon (VZ). Cloud security solutions revenue rose 46%. The company also announced a reorganization and $1B buyback.
AKAM analysts have a median price target of $63.50 for shares with 15 Buy ratings, 9 hold ratings, and 2 sell ratings. Piper was optimistic on 3-7 noting that the growing demand for video over Internet and potential longterm growth in security. AKAM’s low International exposure also opens them up to potential for expansion. Credit Suisse was out cautious following the prior quarter with a $45 PT noting that the company is likely to face pricing pressure from peers and the benefits from the M&E renewal cycle have likely peaked. Margins should continue to come under pressure and stymie growth.
Institutional ownership rose modestly last quarter, Blue Harbour a top holder with 2.99M shares and Fairpointe Capital with 2.95M, their 13th largest position and a 2.81% weighting in the portfolio. Short interest is 5.7%, 6.3 Days to Cover. On 4-18, CEO Leighton Thomson bought 19,546 shares in the open market at $51.15, a nearly $1M investment in the company. It was his second open market buy in the name since February when he bought 96,521 shares, a nearly $5M buy.
On the chart, AKAM shares have been in a strong trend lower since October when they gapped down following earnings and seeing a small rebound this year up 29.5% from the 52-week lows. Shares are just below the 100-MA and 5% below the 50-MA. Shares are forming a bear flag on the daily below the 8-EMA at $51.42 which measures back to $48. AKAM is down 8% in Q2, below the 5-year average for the quarter which is -1.41% but the weakest quarter seasonally on a 5-year timeline. May has been a strong month for the last three years.
NXP Semiconductors (NXPI) will report earnings tonight after the close with the Street looking for $1.09 on $2.21B in revenue, notable jump from last year, and the June quarter targeting $1.32 on $2.34B. FY16 is set for $5.63/$9.54B. NXPI shares have closed higher three of the last four reports. NXPI has a max move to the upside over the last three years of 9.85%, largest negative move of -19.71% and 5.69% absolute average. Shares moved above that range each of the last two reports. The $29.5B semiconductor trades 11.38X earnings, 4.85X sales, and 18X cash with a 24.8% EPS growth forecast for the next five years buoyed by their dominant position in automotive following the Freescale deal. NXP builds in-car networking, autonomous driving systems, and radar ICs which are one of the fastest growing fields in semiconductors. Their mobile payments business has seen volumes continue to be steady. Margins have been getting pressed in their Standard Products business and on 4-12, Bloomberg reported the company was seeking a sale of the division which could fetch $2B. NXPI has exposure to Apple and their iPhone and recent talks of supply cuts potentially impacting NXP’s inventories and business but are less likely to have a notable impact given NXPI’s diversification. The company provides similar chips to Samsung’s Galaxy S7 which debuted this quarter to lukewarm sales. Shares were downgraded from Strong Buy at Raymond James on 4-19 noting potential weakness in their end-markets, particular industrial. SunTrust raised their price target to $102 on 4-12 and Nomura starting shares Buy with a $95 target. Shares have been consolidating in a narrow range since 3-18, a move over $86 set to run to $91. Support below is $78.
Yum Brands (YUM) will report earnings Wednesday before the open with the Street looking for $0.83 on $2.65B in revenue, modest increases over a year ago, with the June quarter at $0.73/$3.13B and FY16 estimates at $3.53 on $13.49B. YUM shares have closed lower each of the last three reports. Shares have an absolute average move of 5.16%. The $33.87B owner of Pizza Hut, KFC, and Taco Bell trades at 20.57X earnings, 2.58X sales, and 77X FCF with a 2.23% yield and double-digit earnings growth forecast. YUM has grown EPS each of the last three years but sales mostly flat. The company has shown positive SSS growth in all of its brands and now margins in focus with lower commodity prices a tailwind. YUM is expected to show SSS growth of 2.6% with Taco Bell at 2.9% and KFC at 2.2%. The WSJ reported in late March the company is considering a potential sale of a 19.9% stake in its China business for $2B, valuing the company at $10B which his slightly above Street estimates. KKR and Baring are reportedly interested in the unit. India a weak spot last quarter with SSS down 13% and reports in late March the company was making menu changes to aggressively go after weak sales and competition. Credit Suisse raised their PT to $82 after the news, seeing incremental positives from new management entering the business and noting it likely puts a floor under the stock. Longbow was positive on a 3-18 note ahead of the company’s spinoff and RBC noted the company as their top pick on 2-5 seeing strength in potential capital allocation strategies. CLSA cut shares to Underperform on 4-12 seeing competitive pressures in China as a major headwind. The firm has an $82 price target. YUM shares have been on a strong run since moving out of a multi-month base in early March, riding above the 8 and 13 EMA since ($81.90 and $81.45 respectively). The 20-EMA at $80.68 also key support. Shares have hit the 61.8% Fibonacci from the pullback off the May 2015 highs. Institutional ownership fell 2.3% last quarter, sizable holders include Corvex Management with 21M shares, their top holding, and the fund a major driver behind the China spin. Soroban Capital has 3M shares and Eminence Capital adding 1.25M shares last quarter, their stake at 2.689M shares. Short interest is 1.99%, off recent highs at 3.5%. On 4/15, the July $87.50 calls were sold to open 7,600X. On 3-31, the May $87.50 and $90 calls were opened 5,000X. The May $82.50/$90 call spread is also in open interest 3,000X from 3-24.
Ross Stores (ROST) will report tonight after the close with the Street looking for $0.64 on $3.21B in revenue, 5.9% growth versus the same quarter a year ago. Next quarter is modeled for $0.76 on $3.13B in revenue with FY16 at $2.49 on $11.9B. ROST shares have closed higher four of the last six reports with a max move of 10.04%, a minimum move of 4.45%, and average of 7.59%. Five of the last six reports have seen follow-through of the earnings day move within the next seven sessions. IV30 is 40.41%
The $22.8B retailer trades at 20.45X earnings, 1.94X sales, and 38.9X FCF with a 0.83% yield and 10-11% earnings growth. The company topped estimates in November with 6.9% revenue growth on the back of a strong comps number, up 3% which bested the majority of its peers. ROST is typically thought of as a strong play on lower gas prices with their customer base benefitting the most from an increase in monthly available income to spend. ROST also avoids a lot of FX headwinds which have pressured retail peers with little to no International exposure. On 2-9, Cowen called ROST the “recession-proof” name if the economy heads into a recession. The firm keeps shares at Outperform with a $63 PT. Credit Suisse in a November note said that the company executes better than most of its peers in a tough retail environment but increasing competitive pressure in the off-price sector from new entrants and expansion from existing names like TJX could put pressure on FY EPS. They also noted that inventory growth outpaced sales growth in the prior quarter, something to watch for continuation. Menswear was the strongest category for sales with Cold weather apparel the weakest and possibly sees a bounce back with more
normalized Winter climate the last two months. ROST was initiated Outperform at Wolfe Research on 2-2 with a $62 PT. SunTrust was out with a positive note on 2-29 noting that the company has a positive read-through from TJX’s results recently as the company is better positioned in the markets they showed strength in and it shows the target consumer is spending.
Institutional ownership fell 1.42% last quarter. RR Partners is a top holder of stock with 4.1M shares, their fourth largest position and 8.82% of their portfolio. Cornerstone Capital added 672K shares last quarter to raise their stake to 1.66M shares, their seventh largest position. Short interest is 2.28%, up from 1.22% in June.
On the chart, shares have held up better than most in 2016 and trading above its Ichimoku cloud and all of its notable moving averages. ROST closed right at its rising 20-day EMA at $55 yesterday. Shares have traded in a $4 range since November and a breakout over $56 would measure to $60. Below the 50-day EMA at $54 would target cloud support and the 100-EMA at $52.75.
Under Armour (UA) will announce earnings 1/28 before the open with the Street view at $0.46 EPS and $1.12B in Revenues, FY15/16 projections of $1.04/$3.92B and $1.34/$4.92B. UA shares have closed lower 4 of its last 5 reports, a 6 quarter average max move of just over 8% and average closing move of just under 6%.
The $14.54B apparel Company trades at a premium valuation of 49.5X Earnings and 3.94X Sales, but has been a top growth story as it expands into Footwear, Technology, and International markets. In October UA posted Q3 results with 28% revenue growth, with apparel +23% and footwear +61%. International revenues grew 52% and represented 11% of total sales. One concerning trend has been gross margin contraction.
Deutsche Bank was out lowering its target on UA to $95 this morning, concerns with the warmer winter and discounting on products. On 1-11 Morgan Stanley cut shares to Underweight with a $62 target seeing market share losses and lowering selling prices in footwear.
Short interest in UA has risen to 14% of the float, doubling since mid-August and at a 2 year high. Institutional ownership rose 0.96% in Q3, Winslow and Sands Capital taking new notable positions. Gilder Gagnon Howe & Co. have a notable 2.67% weighting as their 6th largest holding, a $6.3B fund out of NY that holds growth stocks.
On the chart UA shares have been under pressure since hitting highs in October 2015, breaking a long term uptrend back at $88 while also losing weekly cloud support and bearish 20/40 and 8/20 weekly EMA crossovers. A 50% Fibonacci Retracement of the 2009-2015 range would target a move back to $54. The $72.5 and $77.5 levels are now resistance on a rebound.
UA options are pricing in an 8.5% move on earnings, though skew is fairly flat. UA has seen continuous put buying since shares were trading above $100. There were notable trades on 1/26 with 2,500 February $63/$55 put spreads bought at $1.70 and more than 3,000 February $66 puts were being bought to open throughout the day. On 1/11 a trader bought 1,500 April $70 puts at $5.90 and a sizable position remains in April $90 puts now deep ITM with 4,901 in OI.
General Electric (GE) will report earnings on 1-22 before the open with the Street looking for $0.50 on $36.02B in revenue, a 14% decline versus the same quarter last year. Next quarter estimates are for $0.27 on $29.7B with FY15 at $1.29/125.32B and FY16 at $1.51/130.46B. Shares have closed higher four of the last six reports with a max move of 3.39% and a minimum move of $0.11%. The six period average is 1.33%.
The $283B diversified conglomerate trades at 18.58X earnings, 2.1X sales, and 2.86X cash with a 3.29% yield. Shares have traded well, up 21.46% over the last twelve months, and pulling back recently to the 200-day MA. Shares have a lot of downside protection with the company’s intense capital allocation plan, more than $9B in dividends paid in 2015 and an active stock buyback plan. The company outlined plans to return $90B to shareholders through 2018 in April.
The company has been undergoing a massive restructuring, shedding assets and cutting costs to re-focus on its strengths as an industrial. The company sold off its finance division and other non-essential businesses in 2015, more than $150B and ahead of schedule. They reached a deal recently to sell their Appliances business to Haier for $5.4B, a notable premium over what Electrolux was initially going to pay before the DOJ shut down the deal. The company also finalized a deal for French-based Alstom, their largest ever industrial deal, for $10.6B.
Shares of GE were removed from the U.S. Focus list at Credit Suisse on 11/23 as the firm sees a lack of near-term catalysts for shares as the restructuring continues. They maintained a Buy rating and $31 price target, expecting some weakness in the industrial end-markets GE serves. On 11/16, Deutsche Bank added shares to their short-term sell list noting that the bullish thesis is more of a long-term objective versus the short-term headwinds from energy. The firm keeps a $28 price target.
In October, Nelson Peltz’s Trian Fund took a $2.5B stake in the company, adding pressure to the company’s restructuring plans. It is the largest investment ever for Trian. The fund wants GE to cut costs in an effort to boost margins, raise their buybacks, and explore strategic M&A. The stake was met amiably by management unlike some of Peltz’s other investments. Trian holds 90.5M shares, adding 40.9M last quarter. Institutional ownership rose 1.69% last quarter.
On 1/5, the June $32/28 strangle was sold to open 10,000X
Union Pacific (UNP) will report earnings on 1-21 before the open with the Street looking for $1.42 on $5.46B in revenue, an 11.3% drop from the same quarter last year. FY15 estimates are for $5.58/$22.04B with FY16 at $5.86/$22.15B. Shares have closed mixed recently but lower two of the last three reports and four of the last six. The average daily move over the last six reports has been 3.73% with a max move of 5.69% and a minimum move of 0.72%.
The $63.29B rail trades at 12.58X earnings and 3.1X book with heavy debt loads. Shares yield 2.97% at these levels, likely to attract some buyers on an extended move lower. Earnings are forecast to grow in the mid-single digits over the next five years, cut from the double-digit growth from 2009-2014. In October, UNP posted a surprise EPS beat while revenue fell 10% YOY. UBS was out quite negative on 12/14 cutting estimates to $92 from $110 as the lack of near-term visibility surrounding volume trends and weaker end-markets such as coal and energy make it difficult to call a turning point for shares. The company announced in December that Q4 earnings would fall short of last year’s results as volumes continue to drop. Industry-wide, rail operators have been warning of the impact from a slowdown from their energy customers and October rail data came in largely negative with traffic across the board down for the year. The group also faces pressures from truckers as lower fuel prices make transporting some goods more affordable by the road. Peer CSX recently noted that freight is “in a recession” as cargo volumes drop and revenue got hit 13% YOY as pricing and lower fuel were unable to salvage a weaker outlook. On 1/11, BAML was out with a note about intermodal orders noting that railroad cargo dropped the most in 6 years in 2015.
UNP saw a large insider buy on 12/7 from Director Michael McCarthy of 50,000 shares at an average price of $78.07, a nearly $4M investment in the name with shares hitting new lows. McCarthy was elected to the UNP board in 2008 and has served as head of the McCarthy Capital, an investment management firm, since 1986. Institutional ownership fell modestly last quarter. Short interest is 1.26% and up from around 0.50% in May.
UNP has seen some bullish flow into the recent lows. On 12/29, a trader bought 1,000 August $82.50 calls to open while on 12/21, 2000 of the August $85 calls were bought. On 12/16, a trader bought the January 2017 $80/65 bull risk reversal 3,800X6,600. On 12/4, 2,500 May $80 calls were bought and on 12/3, the May $85 calls were bought 1000X.
On the chart, UNP has traded down into the 50% Fibonacci from the 2009 lows at $70.50 and cloud support on the monthly timeframe, a major spot to hold for a move back up to $85.
American Express (AXP) will report earnings on 1-21 after the close with the Street looking for $1.13 on $8.35B in revenue, a modest decline versus the same quarter last year. FY15 results are forecast at $5.28/$32.75B and FY16 at $5.41/32.52B. AXP has closed lower each of the last six reports with an average move of 3.45%, a maximum move of 5.24% and a minimum move of 0.85%.
The $61.65B payment processor has traded very poorly in 2015, down more than 25% and one of the biggest laggards of the Dow. Shares trade at 11.58X earnings, 1.75X sales, and 7.59X FCF with a 1.85% yield. Earnings growth is expected to be in the low-single digits. AXP has struggled to regain its footing after losing key contracts from Costco (COST) and recently Fidelity which has 24M customers. In October, the company shook up its management and hired a search firm to find new candidates for its board.
On 10/26, UBS cut estimates to a Street low $67 and sell rating noting that the firm doesn’t think AXP will achieve any of its long-term guidance goals for the next several years. The firm thinks 12-15% growth is a lofty number and likely to fall closer to 8%. UBS thinks that the Costco contract cost AXP 8% of its customer base vs. 2.5% expected and 18% of its loan portfolio after the March deadline. The firm also thinks the closed loop model AXP employs has lost its meaningfulness to merchants and the COST deal is a sign that the company needs to regain focus on a turnaround.
AXP has seen short interest jump to 1.97%, up steady from around 0.64% in late 2014. Institutional ownership fell modestly last quarter. Berkshire Hathaway remains the largest holder of stock with 151.6M shares, their fifth largest position, while ValueAct maintains a large position as well.
On 1/5, the ITM February $65 calls were bought 2,250X for $2.95 and followed following 5,500 January 2017 $67.50 calls bought to open $6.10 on 1/4. More than 3,500 weekly January 29th (W) $66.50 puts are also in open interest from 12/24 buys although deep ITM.
On the chart, shares of AXP have traded back into the 38.2% Fibonacci from the 2009 lows at $63 and into monthly cloud support as well. A move higher would initially target $75, a big volume area from the Spring and Summer.
Advanced Auto Parts (AAP) will report earnings Thursday before the open with the Street looking for $2.09 on $2.33B in revenue, growth of 1.6% verus the same quarter last year. Next quarter is guided to $1.53 on $2.12B in revenue with FY15 at $8.28 on $9.85B, essentially flat growth against 2014. Shares have traded higher two of the last three quarters
The $14.21B auto parts store trades at 19.77X forward earnings, 1.4X sales, and 124X cash with more than $1.45B in debt. Earnings are guided to grow 13.5% in the next five years after growing in the high double-digits since 2010. The company reported an in-line quarter in August with revenue missing consensus yet up 0.9% YOY. Same store sales were up 1%, negatively hit by currency issues.
In late September, Starboard Value disclosed a 3.7% stake in the company and sees fair value for shares at $350. The fund likes the defensive nature of the business with customers choosing to repair or invest in the life of their current cars instead of buying new cars. AAP has trailed its closest peer O’Reilly (ORLY) and Starboard laid out a four-point plan to create value including returning capital to shareholders and bolt-on M&A. They also see margins with room to improve 6-7.5% and increasing a focus on commercial sales.
On the chart, shares of Advanced Auto have been in a strong uptrend since 2009, rising more than 375% and up more than 22% in 2015. Shares jumped on Starboard’s disclosure and drifting slightly higher ever since, seeing rejection at $200. Cloud support is below at $182 and a high volume node at $172. RSI and MACD are very stretched in overbought territory and likely a name that gets aggressively bought on any slight miss.
Institutional ownership fell 0.88% last quarter. In addition to Starboard, Fir Tree holds a 1.5M share position and Victory Capital holds 1.3M shares. Lone Point added a new 1.2M share position last quarter. Short interest is 5.9% of the float and up from around 2.9% since January 1st.
Whole Foods (WFM) will report tonight after the close with the Street looking for $0.35 on $3.47B in revenue, a 6.6% rise versus the same quarter in 2014. Comps are expected to come in at 0.9%. Next quarter estimates are for $0.48 on $4.98B in revenue, seasonally strong, with FY15 at $1.67 on $15.42B in revenue, an 8.6% annual growth rate. Shares have closed sharply lower each of the last two reports.
The $11.19B grocer trades at 17.8X forward earnings, 0.74X sales and 16.2X cash with a 1.66% yield at these levels. Earnings are forecast to grow 11.5% over the next five years. Shares have been hit this year on growing concerns over slowing growth as competition in specialty grocery is getting crowded and peers takes share. The company announced an aggressive new concept over the summer, 365 by Whole Foods, designed with younger customers in mind and focusing on lower-cost natural and organic products. They expect 10 stores by 2017. On 9-17, Wolfe Research analysts noted that WFM will likely continue to see pricing pressure on both brands as their competitors continue to undercut them. WFM has begun a series of promotional and marketing campaigns including more e-mailing and in-store events.
WFM also is cutting jobs with some significant cuts announced on 9-28, more than 1,500 people, and Deutsche Bank out with a cautious note as they foresee weakness in the company’s Q4 comps from this move. The analyst notes that WFM’s move is in direct contrast with peer Kroger (KR) who is planning to add 20,000 employees.
Cleveland Research was out negative on 10-26 into the quarter as their checks indicate that sales have slowed into the quarter, especially September. They see a high risk for the company to cut FY16 guidance with a lack of clear direction.
Institutional ownership fell 2.47% last quarter. Short interest is 8.15% of the float, rising from late April of this year when it was around 4.5%, and creeping back towards last September’s peak around 10.4%.
On the chart, shares are trading near $30 support, forming a big base since earnings. A longer-term view shows a big channel down with the mid-point at $40 and a high-end target of $52.50 over time. Support near-term would be at $27, the 61.8% Fibonacci from the 2008 lows although with the options pricing in a notable move, likely could fall further.
Computer Sciences (CSC) will report earnings tonight after the close with the Street looking for $1.14 on $2.79B in revenue, a 9.4% decline versus the same quarter last year. Next quarter is forecast to come in at $1.28 on $2.9B with FY15 estimates at $4.92 and $11.45B, a decline of 6% annually. Shares have closed higher two of the last three reports.
The $9.34B company trades at 12.73X 2016 earnings estimates, 0.80X sales and 9.49X EV/EBITDA. The company reported a mixed quarter in August with revenues from their Infrastructure Services business down 15.3% Internationally and down 6% domestically. They showed some growth in operating margins up 1.4% and increased FCF marginally as well. The company announced on 8-31 a contact with Microsoft and Amazon to consolidate FAA data centers, worth around $110M for CSC but the bull case could see it fetch more than $1B over the next decade.
The company earlier this year the planned separation of its business into two segments: U.S. Federal Unit and its Commercial IT unit. The split is expected by the end of November. They also announced a one-time special dividend of $10.50 with a date yet to be set. The company has been aggressive with bolt-on M&A since announcing the split. In August, they announced a pair of small acquisitions including Fruition Partners, a management consulting firm for cloud ITSM for ServiceNow (NOW) and Fixnetix, a provider of IT management services for financial desks. On 10-5, the company announced it was in talks with UXC Limited, an Australian IT services firm, for a $300M acquisition.
Susquehanna was out on 10-9 noting that shares are undervalued ahead of the spinoff. The firm’s analysis valued the Commercial IT business at $49/share and the Federal Unit at $26, a SOTP valuation of $75. Barclays took shares to Overweight on 9-1 with a $76 price target as they see the company’s merger with peer SRA creating an industry leader.
Short interest is 4.86%, higher from February of last year when it was around 1.4%, but off of 52-week highs set in May. Institutional ownership fell 1.25% last quarter but notable holders include Jana Partners who hold 8M shares and added 570K. The hedge fund disclosed an active stake in February.
On the chart, shares are trading near resistance in a large downsloping channel with support below at the rising 50-day EMA around $64.50. MACD and RSI are both strong but suggesting shares may be overheating a bit here and a pullback likely bought aggressively. Resistance above would be around the May highs at $70.
On 10-9, a trader bought 3,750 December $60 puts for $1.65 and more than 2,000 November $67.50 puts sit in open interest from $3.85 to $3.90.
Electronic Arts (EA) will report today after the close with the Street looking for $0.45 on $1.10B in revenue, a 9.6% decline versus the same quarter last year. FY15 estimates are for $2.95 on $4.53B in revenue, a 4.8% rise in revenue and 17.5% jump in EPS.
The $29.93B videogame developer trades at 22.78X next year’s earnings, 5.3X sales, and 8.3X cash with a strong EPS guide of 17% growth over the next five years. The company reported a big beat on top and bottom line for the fourth consecutive quarter in July. Guidance came in a little light, but likely conservative ahead of some big names in the pipeline in Q4. Monthly active users (MAU) hit 150M with more than 53M livestreams. Digital revenue was $532M, up 10.3% and topping packaged goods which came in at $161M (down 45%) further highlighting the importance and transition to digital downloads. For the upcoming quarter, September NPD video game software sales dropped 3% against a tough quarter from 2014 with Activision’s Destiny franchise. EA’s FIFA 2016 was one of the month’s outperformers, so potential for EA to outperform its peers this quarter. August NPD was down as well but EA’s Madden NFL 16 was the clear cut winner.
Piper was out with a note 10-27 suggesting that digital downloads from FIFA Ultimate Team and sales in Europe could ultimately decide the quarter. On 10-19, Sterne Agee was out positive on the visibility for the company moving past this quarter with a strong pipeline including Need for Speed, Mirror’s Edge, and the much anticipated Star Wars Battlefront in Q4. The firm noted that the beta release of Battlefront showed ‘enormous success’ and sets up EA for potentially strong guidance raise for both next quarter and the FY. They maintain an $80 PT for shares. Piper was out on 10-5 suggesting any sell-off surrounding the 11/17 release of Battlefront should be bought aggressively.
Institutional ownership rose 2% last quarter with large positions from Coatue, Marisco Capital and Frontier Capital, although all reducing their stakes. Short interest is 6.19% and basically flat on the year but down from over 16% in January 2014.
On the chart, shares broke out yesterday to new all-time highs, a strong stock and rebounding ahead of the broader market. A double-bottom recently forming around $65 and over $75.50, a measured move up to the $85 level. Major support is below at the prior breakout level of $72, which also aligns with the 20-day EMA. MACD and RSI are both showing intermediate signs of being overbought. Shares of EA are up 63.79% YTD vs a 1.71% move in the SPY.
Marriott (MAR) will report earnings tonight after the close with the Street looking for $0.74 on $3.65B in revenue, 5.5% jumps versus the same quarter a year ago. FY15 estimates are for $3.11 on $14.7B, mid single digits growth for the year.
The $20.37B hotel operator reported lighter-than-expected revenue last quarter with EPS coming in above consensus. The company noted N. American RevPAR up 5.4% with Worldwide RevPAR up 5.3%. On 10-16, Jefferies cut estimates ahead of the quarter for the entire lodging group on concerns that the sharing economy, highlighted by Airbnb, was taking share. The firm sees competition from Airbnb leading to reductions in RevPAR and thinks the lodging industry’s previous comments about a bottom in RevPAR in Q4 will be undercut and likely impacting FY16 numbers as well. They also see new surges in capacity impacting the group with Marriott most exposed having added 20,000 rooms in Q2 and approved 35,000 rooms recently on top of 40,000 in 2014. Institutional ownership fell nearly 5% last quarter.
Ascend Capital a large holder of shares with 1.27M added last quarter, their 3rd largest position. Short interest is 9.47% of the float, jumping to 3-year highs recently, and up sharply from August 10th when it was 6.29%. SI hit a recent low in February 2014 when it was 2.95% with shares up more than 60% during that timeframe.
Technically, shares moving out of a double-bottom recently along the $66 level and breaking out of a small flag yesterday after on rumors of interest in peer Starwood Hotels (HOT) from a Chinese consortium. All three major moving averages now curling higher with the recent strength. Support below would be at the 50-day EMA around $73 with cloud support below at $71.25. Resistance above would be at a big volume node around $82.
Buffalo Wild Wings (BWLD) will report earnings after the close with the Street looking for $1.30 on $465.16M in revenue, 24.6% higher than the same quarter last year. FY15 estimates for $5.60 on $1.85B with FY16 estimates at $7.13 on $2.23B. Shares have closed higher three of the last four reports. Shares missed top and bottom line in July with SSS at 4.2% growth in company-owned versus 2.5% in franchised restaurants. The company noted that SSS for the first four weeks of Q3 were up 4.8%/2.0% respectively against tough comps from the prior year due to the World Cup.
Food and labor costs depressed Q2 earnings and revenue with PPP for wings 26% higher vs 2014, likely not an issue that has gone away although some relief as prices were 41% higher in Q1. The company also said that labor as a percentage of sales jumped due to higher wage rates and benefit costs. CEO Sally Smith was recently profiled in the Wall Street Journal on 10-25 noting that in addition to labor, chicken prices and a rise in beer keg prices will impact costs. Wings and beer combine to make up 40% of the company’s sales. The company plans a 2.1% price hike in November. BWLD also closed the purchase of 41 franchised units during the quarter increasing their base by 7%. The $3.47B company trades at 25.64X 2016 estimates, 2.1X sales, and 37.74X cash. Management has forecast 13% EPS growth next year.
Institutional ownership fell 2.06% last quarter. Short interest is 11.85% of the float, down from 52-week highs near 17% on July 31st. On 10-19, Maxim raised estimates for the quarter with a Buy rating and $217 price target for shares. The firm sees 20-25% EPS growth in 2016 and 2017 as achievable. Cowen also sharing this sentiment with a note in early October as they see benefits from the company’s lunch menu and help lift numbers over a fairly easy comp number. On 10-12, Raymond James was out cautious that since the company has already revised numbers down to 13% EPS growth, any revision lower would likely cause shares to get hit.
On the chart, shares have pulled back to weekly Ichimoku support at $175 and filling the gap from last quarter’s results. The 50% Fibonacci from the June lows to September highs also sitting at $177.30. Near-term signs of caution with the daily beneath all of its major moving averages and MACD and RSI both weak. Resistance above would initially be at the 20/50 EMA around $188 and then a big volume node above at $196. Support below sits at 170.60, the 61.8% Fibonacci and $162.25 which is the prior breakout zone.
Fiserv (FISV) will report tonight after the close with the Street looking for $0.97 on $1.33B in revenue, 5.3% growth versus the same quarter a year ago. FY15 estimates are for $3.82 on $5.31B in revenue. Shares have closed higher three of the last four reports.
The $22.41B provider of software for the financial services industry with segments in payments, internet and mobile banking, person-to-person, and electronic bill payment and presentment services. Their primary customers are credit unions, banks, thrifts, and investment management firms. They also provide payment information to retailers and merchants. Shares trade at 22.2X forward earnings, 4.3X sales, and 42X cash with a forecast of 13% over the next five years. The company reported a mixed quarter in July, beating on EPS by a penny and missing on revenue slightly.
Cowen initiated shares at Market Perform on 10-1 with an $83 price target. Oppenheimer maintains a Street high $95 price target for shares. They see margin expansion and an incremental take-off in revenue growth over the next three years as main drivers for shares. The firm sees bank spending rising 5% annually.Institutional ownership rose modestly last quarter. Short interest is at 5-year highs, 2.9% of the float, and rising from around 1% at the start of the year.
On the chart, shares are in a strong uptrend, up from around $30 in late 2011. Shares broke out of a big 8-point range in late September which measures to $98.50 with support at the prior breakout level around $90.50. Below would target the 50-day MA at $88 and then the Ichimoku cloud support at $84.25. Shares are a bit overbought across most metrics with MACD around 2.006 and RSI over 70. FISV saw an opening buyer of 2,000 November $90 puts on 10-22 from $1.25 to $1.45 while the November $85 puts were bought 2,000X on 10-9 from $1 to $1.25.
Fortune Brands (FBHS) will report earnings tonight after the close with the Street looking for $0.65 on $1.26B in revenue, a 14.6% rise in sales versus the same quarter a year ago. FY15 estimates are for $2.06 on $4.6B. Shares have closed lower three of the last four reports but a big mover last quarter. The company posted top and bottom line beats last quarter with a strong quarter in all four business segments (in order of size): Cabinets (+9.5%), plumbing (+6.4%), Doors (+5.6%), and Security (+32.5%). It was the first quarter in the last year which showed a positive surprise on both EPS and revenue. The $7.86B company trades at 19.4X forward earnings, 1.9X sales and 35X cash with a 1.14% yield with shares at these levels. Barclays downgraded shares last week to Equalweight with a $50 PT with the slowing housing recovery likely a headwind for some time. On the chart, shares have formed a series of lower highs and higher lows recently after hitting $52 in early August, a big wedge. A large volume node sits below at $45, recent support, and below could be the start of a move back to $38 where shares found support in October 2014. Institutional ownership rose 2.23% last quarter. Short interest is 8.35%, sharply higher since the beginning of the year, and continuing to build despite the steady rise in share price. Short interest was under 1.5% in April of 2014
ServiceNow (NOW) will report earnings tonight after the close with the Street looking for $0.08 on $256.22M in revenue, a 43.4% jump versus the same quarter a year ago. Shares have closed higher three of the last four quarters. FY15 estimates are for $0.22 on $996.91M, a 46% rise in sales on lower EPS. FY16 estimates stand at $0.47 on $1.36B.
The $11.67B provider of cloud-based solutions for enterprise trades at a premium valuation: 160X next year’s earnings, 25X book and 51X cash, near 5-year highs. Sales have risen every years since 2015 but concerns over slowing growth up 46.1% this year and expected to be up 36.4% next year (prior YOY jumps are 60.7%, 74.2%, 163.1%). Earnings are forecast to grow 55% over the next five years. The company reported top and bottom line beats last quarter with billings coming in $280-285M. Management forecast 8% operating margins for the quarter up 2.3% from a year ago. The company reported EMEA revenues up 33% last quarter with N. America revenues up 52.6% and Asia-Pacific, their smallest segment, up 60%.
MKM was out positive ahead of the quarter in early October as their proprietary data suggests billings momentum continued into the quarter. They see a potential upside surprise in public sector numbers which have easier comps as a new offering. They also see a rise in hiring by the company as a sign of the businesses momentum. Brean was out positive on the quarter yesterday reiterating their Buy rating and $96 price target for shares as they see room for improvement in numbers, especially Q4 which management guided essentially in-line. Institutional ownership rose 4.03% last quarter. Short interest is 5.71% of the float, up from July 31st when it was around 4.3% but relatively flat over the last two years.
On the chart, shares have traded in an orderly channel lower since April with resistance above at $80 and support below at the August/October double-bottom around $68 and cloud support at $72.75. Shares recently moved above all of their notable short-term moving averages and forming a bull flag which triggers over $76.60.
5,000 May 2016 $65 puts have accumulated on 10/5 and 10/8
Interactive Brokers (IBKR) will report tonight after the close with the Street looking for $0.32 on $367.12M in revenue, sales doubling versus the same quarter a year ago. FY15 estimates are for $1.00 on $1.32B with FY16 estimates at $1.57 on $1.57B. Shares have closed three of the last four reports. The $16.29B investment brokerage trades at 25.3X forward earnings, 16X sales, and 3X book value with a 1% dividend yield. Earnings are forecast to grow 17% over the next five years with a strong ROI over 57%. T
he company reported a top and bottom line beat last quarter, solid numbers, with customer equity up 22% YOY to $66B. Sales grew 26.2% with earnings up over 45%. September growth numbers showed an 18% YOY growth in customer accounts to 322K and DARTS up 15%. Goldman Sachs initiated shares at Neutral on 10/6 with a $44 price target, a valuation call with growth estimates priced into shares. On Wednesday, KCG Holdings, a retail-oriented market maker, reported 3.9M U.S. equities trades per day in the month of September.
Institutional ownership rose 2.4% last quarter with notable holders Kylin Management, Passport Capital and Valiant Capital. Short interest is 4.31% up sharply from August when it was under 2.2%. On the charts, shares have been in a strong uptrend since early 2014 and recently pulled back to the 38.2% Fibonacci of the move. Shares are consolidating under the Ichimoku cloud with resistance above at $40.85 and support below at $37. A break lower would target $33.15 while a move higher would target the 52-week highs at $46. On 6/11, a trader bought 1,000 January $40 calls which remain in open interest.
Pentair (PNR) will report earnings on Tuesday before the market opens with the Street looking for $0.95 on $1.59B in revenue, a nearly 9.5% decline versus the same quarter a year ago. FY15 estimates are $3.84 on $6.47B in revenue with FY16 coming in at $4.36 on $6.81B, 5% growth YOY. Shares have closed mixed the last four reports but lower the last two.
The $10.01B multi-faceted industrial trades at 12.73X forward estimates, 1.5X sales, and 2.19X book with a 2.3% yield at these levels. The company has forecast EPS growth in the high single digits with 2% ROA, 4% ROE, and 8.8% ROI. The company reported a slight beat in July, top and bottom line and forecast FY15 EPS slightly above consensus. They guided Q3 at $0.94-0.97 vs $1.01 expected and revenues at $1.6B versus $1.62B expected, down 8-9% from a year ago.
Much of the disappointment in FY EPS has come from the company’s reliance on the oil and natural gas industries and their use of the company’s pumps, filters, and valves. The company showed weakness in valves & controls with sales down 21%, mostly from energy which comprises 60% of the unit. Flow and filtration systems showed a 12% decline. Water quality systems, including residential and commercial construction and food & beverage, showed the only strength up 3%.
In late June, Trian Fund, the hedge of fund of Nelson Peltz, announced a 7.24% stake in the company and was looking for the company to accelerate the pace of M&A by using their $800M in cash to consolidate the specialty parts industry. Pentair CEO Randall Hogan noted in May that he is targeting a $20B market-cap for the company with sales exceeding $10B.
In mid-August, the company announced a $1.8B deal for ERICO Global.
Stifel downgraded shares on Friday ahead of earnings as they see weaker commodity prices and tough comps going forward as major headwinds for shares. They also see pricing issues in Valves and lack of obvious deals after the ERICO acquisition leading to near-term stagnation. Morgan Stanley keeps shares at Equal Weight with a $65 price target.
Institutional ownership fell 1.1% last quarter ex-Trian with large holders of stock including Glenview and Parnassus Capital. Short interest is 5.5% of the float and up steady since last Fall when it was under 2%. On the chart, shares stalled out last week at cloud resistance and a small gap from early August. Major resistance lies above at $59-60. Support is below at the September lows around $50.
On 10/8 a trader opened 1,000 November $55 puts for $1.80
Harley Davidson (HOG) will report earnings 10-20 before the open and the Street estimate at $0.78 EPS and $1.21B in Revenues, and FY15/FY16 projections at $4.02/$5.53B and $4.57/$5.77B. HOG shares have closed higher on earnings 3 of the last 4 reports and a 6 quarter average max move of 7.25% and average closing move of 6.25% HOG options are pricing in a 5.85% move for this quarter.
The $11.4B maker of motorcycles trades 12.1X Earnings, 1.9X Sales, 3.8X Book and 16.3X FCF with a 2.24% dividend yield and after 18.3% EPS growth in 2014, positioned for 10-12.5% forward growth. In Q2 Harley posted 0.7% sales decline in the US and 2.7% decline International, and notes China/India as growth markets. Total motorcycle shipments were down 7.6% year/year.
On 10-13 Stifel lowered its target to $71 seeing 2015 shipment guidance at risk, but still seeing attractive valuation. On 10-12 Longbow cut shares to Neutral from Buy. On 6-18 UBS upgraded shares to Buy with a $63 target on valuation and the balance street strategy after Harley announced plans to buyback 15M additional shares of stock which many Analysts see as providing a floor under shares. On 10-9 Wunderlich was out cautious after dealer checks seeing further market share declines while William Blair was positive seeing good weather, positive reactions to new models, and discounts to financing boosting sales.
HOG has 10.76% of its float short, a 5 year high, and has doubled since mid-May. Institutional ownership at 88% is near a 10 year high. Institutional ownership fell 2.7% in Q2. Cantillon Capital reduced its position, but is the 5th largest holder of HOG, and its 6th largest position.
On the chart HOG shares have spent a few months basing above the $52.50 level, though a descending triangle formed and the downward sloping 200 day MA at $58.55 overhead as resistance. HOG’s next major support is the $50 level from 2013, and valuation and buybacks likely limits downside, but a move below targets a 50% retracement to $45.85. On 10-7 and 10-13 the February 2016 $55 puts were bought open around $3.70 for 1,250 contracts. On 10-9 a trader bought 2,300 January 2016 $57.50 calls at $1.95 in a stock replacement. On 10-5 traders bought 4,500 November $57.50/$60 call spreads.
In summary, Analysts are mixed on HOG into this quarter but China could drag on results, but valuation should leave a positive reward/risk into the quarter, and any recovery in shipments would give the stock reason to rally. Taking into account the surging short interest and chart, I would favor long volatility and bearish strategies into results.
Xilinx (XLNX) will report earnings today after the close with the Street looking for $0.47 on $529.58M in revenue, down more than 12% from a year ago. FY16 estimates are for $2.02 on $2.19B in revenue, a 7% decline versus FY15. The company reported EPS in-line last quarter but missed on revenues for the third consecutive quarter. Sales were down 3% vs the prior quarter and down 10% versus the prior year. They guided sales for this quarter down between 2 and 6% with gross margins between 69-70%.
The $11.5B company has end-market exposure in several hot areas including automotive, aerospace, broadcast, and Internet of Things. They also have exposure to industrials and defense. The company has seen revenues from data centers fall from more than 53% of its overall revenue last year to 38% last quarter (down 36% YOY) with wireless sales hitting 7-year lows. The rest of their customers generated revenue growth between 1-3% last quarter. The company showed strength in N. America (+2%) and Japan (+8%) last quarter with weakness in Asia (-7%) and Europe (-11%). Shares trade at 20.1X forward estimates, 4.9X sales and 4.3X book with more than $12.50 per share in cash. Shares yield 2.79% at these levels with EPS forecast to grow 8-10% over the next five years.
In mid-September, Goldman Sachs upgraded shares to Buy with a $50 price target. The firm sees data centers and communications, noted as a weak spot, bottoming with demand typically running 25-30% higher. They also see catalysts going forward including aerospace accelerating into 2016, China Telecom and China Mobile spending, and LTE expansion in India. Pac Crest reiterated their $55 price target for shares on 9/28.
Institutional ownership fell 1.99% last quarter but a notable buy from Blue Harbour (their 10th largest position) of more than 1.1M shares. Short interest is 3.46%, up from under 1.5% in June of last year, and near 52-week highs.
XLNX has some bullish options in open interest. In late September, a trader bought 1,500 January $48 calls while in late August more than 3,000 March $41 calls were bought to open. XLNX also has 5,000 December $47/36 bull risk reversals in open interest.
On the chart, shares have held up much better than most semiconductors, forming a big multi-bottom pattern around the $40-41 level. A big area of resistance above would be $48 which is where shares rolled over in June with the 50/200 day crossover happening this week.
CSX Corp (CSX) will report earnings tonight after the close with the Street looking for $0.51 on $3B in revenue, modest declines from a year ago. FY15 estimates are for $2.01 on $12.08B. Shares have opened mixed over the last six reports but faded the initial gap each time. The maximum 1-day move (close to close) was 6.81% with a minimum move of 0.13%. The average is 1.73%. 30-day IV is 31%, in line with the last four reports and in the 54th percentile of its 52-week range. The company reported mixed results last quarter with revenues coming in a bit light for the second consecutive quarter. CSX likely talks about continued weakness in coal and at the Cowen Conference in early September noted that they see volumes down 2% with both coal and merchandise markets lagging. The company said their goal of flat earnings would be difficult and took down FY estimates to mid-single-digits. With China weakness and other commodities under pressure, likely to see a muted forecast from the company. The $27.9B rail trades at 13X next year’s estimates, 2.2X sales and 2.4X book with a 2.55% yield at these levels. Earnings growth is forecast to be 7-8% over the next five years, the most conservative of the sector, with ROI near 12% and ROA at 6%. Goldman Sachs put out a positive note on the rails on 9/30 as they upgraded their view to Attractive from Neutral. The firm continues to see rail volumes contracting, the rate of decline is improving and most of the sector’s problems are priced into shares. The firm also upgraded their view of 2015 margins to 35%. They rate CSX at Buy and RBC Capital maintains a Street high view of shares with a $37 price target. Shares are forming a double-bottom against $26 which, over $29.75, would measure to the 200-day moving average at $33. Below $26, shares would initially test the $24.50 level from 8/24. CSX had an opening buyer of 5,000 October $29 calls for $0.35 yesterday.
Keys from last report: Revenue -6% overall, volume -1%, expenses down 9% on lower fuel prices; guided coal volumes -10% for the year
ADTRAN (ADTN) will report earnings tonight after the close with the Street looking for $0.14 on $160.27M in revenue, modest declines versus the same quarter a year ago. FY15 estimates are for $0.37 on $611.71M, down around 3% YOY. In Q2, ADTN posted a beat on both the top and bottom line, reversing course from a weaker-than-expected Q1. Shares have closed lower four of the last six reports. Four of the six reports saw the initial opening move faded throughout the day. 30-day IV is 36.36%, lower than the prior four reports, and in the 54th percentile of its 52-week range.
ADTN has business primarily in the U.S. with 60.53% of sales domestically but 24% from Germany and 15.49% from other International sources. The company is mostly exposed to carrier networks with 81% of sales, primarily from broadband access and Multi-service Access Gateways; while 19% of sales came from enterprise driven primarily by HDSL. The $787.9M provider of communications equipment such as multi-service access nodes and multiplexer products trades at 22.48X forward earnings, 1.29X sales and 1.65X book with a 2.28% yield. The company has a strong EPS guide for the next five years looking for 24% growth on the back of strong Connect America Fund (CAF) orders expected to come through the end of the year. Deutsche Telekom revenues came in flat last quarter. Other major customers to watch will be Ingram Micro (IM) and Synnex (SNX). The company cancelled their deployment with AT&T (T) in April which was expected to drive revenue and earnings reacceleration.
MKM lowered their target for shares to $16.50 from $18 in early October ahead of earnings and Northland Initiated coverage at Outperform with a $20 target. Institutional ownership fell 11.39% last quarter. Short interest is 4.13%, down from 52-week highs and far from 2013 highs which was over 30%.
On the chart, shares have been in a steady downtrend since early 2014 with shares topping out around $28 and back to late 2012 levels at $16. Recent strength has pushed shares back to a descending trendline and a break higher would measure to $17.40. Beneath the recent lows at $14.20 shares would target the 2009 lows at $12.12.
PPG Industries (PPG) will report results on 10-15 before the open with the Street expecting $1.60 EPS and $4.05B in Revenues, and FY15/FY16 projections of $5.69/$15.62B and $6.46/$16.29B. In Q2 PPG posted EPS just above estimates while revenues were below estimates and rose just 0.4% year/year. PPG shares have closed lower the last 4 earnings reports with an average closing move of just 1.6%. In two of those quarters shares opened higher and faded from positive to negative throughout the day.
PPG now has 93% exposure to Coatings and just 7% to Glass. US & Canada account for 47% of sales, EMEA 31%, Latin America 6%, and Asia-Pacific 16%. In terms of end markets, Construction accounts for 45% of Sales, Automotive 33%, Aerospace/Marine 8% and General Industrial 14%. PPG has #1 market share in Refinish/Collision, Auto OEM, and Aerospace for Coatings, and 2nd in Architecture, General Industrial and Packaging. PPG lists Valspar (VAL), Sherwin Williams (SHW), RPM International (RPM) and Akzo as peers.
The $26.35B Company trades 15.1X Earnings, 1.7X Sales and 5.1X Book with a 1.48% yield, EPS growth of 34% in 2014 set to normalize to 10-12.5% the next 3-5 years. PPG has just 1.05% of its float short, steady since last quarter. In November of 2014 PPG completed a $2.3B acquisition of Comex S.A., and based on FMC Corp’s (FMC) recent guidance on Latin America, this could be an area of concern for the PPG report.
PPG was upgraded to Buy at Goldman on 10-12 ahead of earnings with a $113 target, a relative valuation call, saying overblown fears of global deceleration in Asia and autos, two markets where PPG has done well. RBC and Deutsche Bank both reiterated positive ratings in September with $115 price targets.
Institutional ownership in PPG rose 0.44% in Q2, and OZ Mgmt. is the 16th largest holder, its 36th largest position, and added nearly 200K shares in Q2.
PPG has over 4,000 November $95/$85 bull risk reversals in open interest that were opened 9-2, 9-3, and 9-4.
On the chart PPG shares broke a long term uptrend in mid-August and below its weekly cloud support. PPG shares held right at $86.45 support, the 38.2% retracement of the 2011 to 2015 rally, a key level going forward. PPG also ran into 38.2% retracement resistance of the June-September downtrend at $97.50, first resistance, followed by the 50% retracement that aligns with the 20 week EMA at $101.40.