NEW DIRECTIONAL CALL PLAYS

JB Hunt Transport - JBHT - close: 79.23 change: -0.49

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on July -- at $---.--
Listed on July 26, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
According to JBHT's website the company describes themselves as, "one of the largest transportation logistics companies in North America, provides safe and reliable transportation services to a diverse group of customers throughout the continental United States, Canada and Mexico. Utilizing an integrated, multimodal approach, we provide capacity-oriented solutions centered on delivering customer value and industry-leading service."

"Our service offerings include transportation of full truckload freight, which we directly transport utilizing our company-controlled revenue equipment and company drivers or independent contractors. We also have arrangements with most of the major North American rail carriers to transport truckload freight in containers and trailers. We also provide customized freight movement, revenue equipment, labor and systems services that are tailored to meet individual customers' requirements and typically involve long-term contracts. Our customer base is extremely diverse and includes a large number of Fortune 500 companies."

Just before Q2 earnings season started Barclays upgraded their view on the transportation sector. The analyst firm felt that an improving economic picture in the U.S. would fuel significant earnings growth for the transport industry. It appears to be a good call with the transportation sector leading the market higher. The Dow Jones Transportation Average is up +13.8% year to date and hitting all-time highs.

JBHT is only up +2.5% year to date but it too is near all-time highs and looks poised to run. JBHT reported earnings on July 15th. Wall Street was looking for earnings of 79 cents a share on revenues of $1.54 billion. JBHT delivered a profit that was in-line with estimates while revenues rose +11.9% to beat estimates at $1.55 billion.

Some of the standout performances for JBHT were their DCS and ICS segments. The Dedicated Contract Services (DCS) business saw revenues up +15% in the second quarter over a year ago. Their Integrated Capacity Solutions (ICS) business reported revenue growth of +31% from a year ago. Management guided their full-year 2014 revenues in the $6.14-6.25 billion range. That's a +10% to 12% rise for the year.

JBHT's President and CEO John N. Roberts III offer this perspective on the quarter, "The slowdown in train velocity and the difficult driver recruiting environment has challenged our growth in JBI. We are pleased we were able to maintain profitability levels despite these obstacles. The worsening driver supply conditions will continue to be a headwind for DCS and JBT as well. The planned improvement in JBT is ahead of schedule and though there is more to do, we are extremely pleased with the progress thus far."

JBHT bought back 990,000 shares of its stock during the second quarter for $75 million. They still have about $263 million left in their buyback program. As of June 30, 2014 JBHT had 117 million shares outstanding.

JBHT's earnings report earned some upgrades with two firms raising their outlook on the stock. One of them was Credit Suisse who raised their price target on JBHT from $78 to $86. The Credit Suisse analyst also adjusted their earnings growth from 7% today to +22% in 2015.

Currently shares of JBHT are hovering just below major resistance at $80.00. If the stock breaks out it could see a run towards $90 or higher. The Point & Figure chart is forecasting at $95.00 target.

We are suggesting a trigger to buy calls at $80.25.

Trigger @ $80.25

- Suggested Positions -

Buy the Nov $80 call (JBHT141122C80) current ask $3.00

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart:


NEW DIRECTIONAL PUT PLAYS

United Natural Foods, Inc. - UNFI - close: 59.80 change: -0.69

Stop Loss: 62.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = --- million
Entry on July -- at $---.--
Listed on July 26, 2014
Time Frame: exit PRIOR to earnings in mid September
New Positions: Yes, see below

Company Description

Why We Like It:
Natural and organic foods are a growing business today. The consumer is choosing healthier and typically more expensive foods, which had driven long-term gains for companies like UNFI and Whole Foods (WFM). Yet all of this growth has caught the attention of competitors.

According to UNFI's website the company, "is the leading independent national distributor of natural, organic and specialty foods and related products including nutritional supplements, personal care items and organic produce, in the United States. In addition to excellent distribution services, we provide a range of innovative, value-added services for our customers and suppliers, to foster mutual success and growth. Our services include marketing and promotional tools, merchandising, category management and store support services."

UNFI's business also includes a chain of retail stores with their Earth Origins Market brand. They also do a lot of importing and processing of nuts, seeds, and fruits with their Woodstock Farms company. UNFI just recently announced the acquisition of Tony's Fine Foods.

The challenge is that grocery and food products are normally a low-margin business. The organic and natural niche has enjoyed bigger margins but those margins are contracting as more and competition tries to hop on the natural and organic bandwagon. Large regional food chains and nationwide titans like Wal-mart and Target could steal market share. It has been a serious problem for Whole Foods (WFM) and that makes it a problem for UNFI because WFM is UNFI's biggest customer. WFM accounts for over one third of the company's revenues.

If growing competition wasn't enough the grocers and processors like UNFI also face rising input costs as suppliers raise prices. Margins are getting squeezed from both sides.

Now UNFI's latest earnings report wasn't that bad. The company announced earnings on June 11th. Results were in-line with Wall Street estimates. Sales improved +13.8% from a year ago. Yet gross margins inched down from 16.8 percent to 16.7 percent. That doesn't seem like much but it confirms the trend. Furthermore, while the prior quarter's sales were up +13.8% UNFI is only expecting full-year revenues to grow 11.0%-11.6% this year.

You can see on the chart where UNFI plunged in early June on its earnings report. The oversold bounce failed near $67.00 and the stock has gone almost straight down since then. Today UNFI is flirting with a breakdown near support in the $60.00 area. Last week the stock bounced at $59.25 and $59.30. We are suggesting a trigger to buy put options at $59.00.

Please note that Whole Foods (WFM) is scheduled to report earnings Wednesday, July 30th, after the closing bell. WFM's results and their guidance will have an influence on shares of UNFI. More conservative investors may want to wait until after we see how the market reacts to WFM's results before initiating positions on UNFI.

Trigger @ $59.00

- Suggested Positions -

Buy the NOV $55 PUT (UNFI141122P55) current ask $1.95

Option Format: symbol-year-month-day-call-strike

Annotated Chart:

Weekly Chart: