Trade Of The Week

Cardtronics (CATM) Short Puts in OI Look for Recent Lows to Hold

Date: 2/20/17

Stock: CATM

Trade Details:

Cardtronics (CATM) shares have traded lower by more than 15% since reporting earnings in mid-February and trading back to a key level where some notable puts have been sold to open. On 11-21, the June $45 puts were sold to open for $1.87 and volume growing to over 6,000 today. The March $40 puts were sold to open more than 5,000X and remain in open interest. Both trades are looking for shares to hold above the recent levels and willing to own significant stock positions near the recent lows.

Fundamental Analysis: 

The $2.03B company with a focus on ATM machines trades 14.39X earnings, 1.6X sales, and 9.72X FCF with 14-15% EPS growth. CATM has grown revenue to more than $1.4B per year up from $876M four years ago.  The company beat on the top and bottom line in February but noted that they see 2017 as a transition year with the addition of DC Payments and the withdrawal from 7-Eleven locations in the US. The company’s big focus over the next 12-18 months will be the recovery from the 7-Eleven deal but making up for a lot of lost locations and potential to see earnings under pressure as they transition into new contacts.  The company has been striking a number of deals including expanding their relationship with Walgreens (WBA), 900 new ATM contracts in the US/EU and a deal with Citibank to brand over 1,900 machines. CATM has added over 31 financial institutions to their Allpoint network. The DC Payments deal added over 25,000 ATMs Internationally in the UK, Australia, and Mexico.

Analysts have an average target for shares of $50 with 2 buy ratings and 3 hold ratings. Jefferies reiterated a buy rating and $52 price target in December but Wells Fargo downgrading seeing revenue and earnings growth limited as they transition over the next two years. They keep a $54-$56 price target for shares. Institutional ownership fell marginally last quarter, Cantab Partners and Snyder Capital both notable holders of shares. Short interest is 10.6% of the float but nearing 3-year lows and down from 20% in January 2016.

On the chart, shares have traded lower since February when they traded as high as $56. Shares are holding above major support at $42.50 which is the September lows and June 2016 breakout spot. The 38.2% Fibonacci from the recent run is at $45. On a longer-term view, shares are holding just above the 2013 highs at $44.46.

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