Shuffle Master (NASDAQ:SHFL) engages in the development, manufacture, and marketing of technology-based products for the gaming industry. Its Utility Products segment offers a line of automatic card shufflers for use with various card table games and chip sorting machines placed in casinos and other locations. This segment also develops various products, including shufflers, chippers, intelligent table system, and bloodhound to automatically gather data and to enable casinos to track table game players. The Entertainment Products segment provides a line of live proprietary poker, blackjack, baccarat, and pai gow poker table games. Further, it offers Table Master, an electronic version of a card table game, which delivers the company's branded table game content on a multiplayer video platform. Table Master includes a video tabletop that displays players' cards, plays, and bets; and uses a player-activated button panel that simulates the player options of a live table game. The company sells its products to casinos and other gaming establishments worldwide through direct sales force and distributors.
Shares of SHFL tumbled Friday after the company annnounced favorable quarterly profits but also said that operating margins declined 13.8% year over year due to accounting-compliance fees and legal expenses. Although net income increased 12.5% or 19 cents per share, as a percentage of revenue, earnings declined slightly to 25.2%. Apparently the stock was priced for "perfection" as investors unloaded the issue despite the positive report. Regardless of the reason for the sell-off, SHFL appears destined to remain in a lateral range for the next few weeks and traders who agree with that outlook should consider this position.
Fundamentals Chart Earnings Dates Analyst Ratings
PLAY (conservative - bearish/credit spread):
BUY CALL JUL-35.00 SFQ-GG OI=2 ASK=$0.10
SELL CALL JUL-30.00 SFQ-GF OI=400 BID=$0.45
INITIAL "NET-CREDIT" TARGET = $0.40-$0.45
POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
RETURN ON INVESTMENT (max) = 8.7%
COST BASIS = $30.40
INITIAL EXIT STRATEGY:
Once the spread is open, traders should place a (contingent) order to close the short ($30.00) call options if the stock price moves above $29.75 on an intraday basis. A "net-debit" order of $0.85-$0.90 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.