NEW DIRECTIONAL CALL PLAYS
Costco Wholesale - COST - close: 146.38 change: +1.44
Stop Loss: 142.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on July -- at $---.--
Listed on July 22, 2015
Time Frame: Exit PRIOR to earnings on Sept. 30th
New Positions: Yes, see below
Shares of COST are only up +3% year to date but they seem to have turned the corner after a three-month correction lower. The stock saw big gains in early February but that proved to be the peak.
Shares fell almost $20 or -12% from its late March high to late June. Fortunately for the bulls the correction appears to be over.
If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 672 warehouses, including 474 in the United States and Puerto Rico, 89 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."
Earnings growth has been lackluster. Their most recent earnings report was May 28th. COST reported their Q3 earnings of $1.17 per share. That only beat estimates by a penny. Revenues were up +1.2% to $26.1 billion, which missed estimates. The company seems to be suffering from slow same-store sales.
COST's April same store sales fell -2.0% versus estimates for -0.3%. May same-store sales were flat (+0.0%). June's same-store sales were -1.0% against estimates for -0.1%. Analyst Charles Grom, with Sterne Agee CRT, says the headline number is not showing the whole picture.
According to Grom, COST's June same-store sales decline was only the second time since 2009 they were negative. If you remove currency headwinds and volatile gasoline prices from the mix then COST's sales are up +5.5% and traffic has been rising +4.0%.
Sterne Agee is not the only analyst firm bullish on COST. Piper Jaffray recently defended COST and reiterated their bullish "overweight" rating and $154 price target. A few days later Oppenheimer's analyst Brian Nagel upgraded COST from perform to outperform and gave the stock a $160 price target.
Shares of COST have definitely broken their three-month bearish trend of lower highs. COST has also rallied past technical resistance at its 50-dma, 200-dma, and the $145.00 level. We think the rally continues. Today's high was $146.48. We're suggesting a trigger to buy calls at $146.75.
Trigger @ $146.75
- Suggested Positions -
Buy the OCT $150 CALL (COST151016C150) current ask $2.86
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike