NEW DIRECTIONAL CALL PLAYS
L Brands, Inc. - LB - close: 96.82 change: +0.78
Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on October -- at $---.--
Listed on October 17, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: Yes, see below
The U.S. economy has hit a slow spot. Q2 GDP growth was +3.9% but Q3 is expected to dip to +1.0%. Consumers are not helping. The monthly U.S. retail sales figures for September inched higher +0.1% when economists were expecting a +0.2% gain. The core-retail sales, which
excludes autos, gasoline, building materials, and food actually fell -0.1%.
Wal-Mart (WMT), the biggest retailer on the planet, did not help investor confidence when they surprised the market by lowering their guidance on Wednesday last week. WMT plunged -10% in one day and most of the retail stocks fell with it. Wednesday's decline looks like a buy-the-dip entry point in LB.
LB is in the services sector. According to the company,
"L Brands, through Victoria's Secret, PINK, Bath & Body Works, La Senza and Henri Bendel, is an international company. The company operates 2,987 company-owned specialty stores in the United States, Canada and the United Kingdom, and its brands are sold in nearly 700 additional noncompany-owned locations worldwide. The company's products are also available online at www.VictoriasSecret.com, www.BathandBodyWorks.com, www.HenriBendel.com and www.LaSenza.com."
U.S. retail sales may be slowing but not at LB! The company recently reported their same-store (comparable) sales for September. Analysts were expecting comparable sales to rise +5%. LB said their September comps surged +9%. The gain was driven by strength in their Victoria's Secret business. This is a power house in its space with Victoria's Secret capturing 40% of the $13 billion lingerie market (that's just the U.S. market).
The strong September comps followed a strong August where same-store sales rose +6%. After the September numbers came out LB raised their Q3 earnings guidance from +0.12-0.16 per share to $0.18-0.22.
LB is also enjoying some tailwinds for their input costs. You're already aware that oil prices have been depressed all year. Now cotton prices are forecasted to fall this year and into 2016. Plus there has been some bullish speculation that the new Trans-Pacific Partnership trade agreement could also lower costs for apparel makers.
Technically LB has been incredibly strong with a big rebound from its August correction lows. Shares consolidated for a good chunk of September and then resumed its up trend in October. The last few days have seen LB consolidating gains in the $95-97 range. Traders bought the dip on Wednesday, when WMT issued their earnings warning, near round-number support at $95.00. I suspect LB will rally past $100 soon. The point & figure chart is forecasting at long-term $127.00 price target.
I am suggesting an initial stop loss at $92.85 but more conservative investors may want to use a stop closer to $95.00. Tonight we are listing a trigger to buy calls at $97.65.
Trigger @ $97.65
- Suggested Positions -
Buy the NOV $100 CALL (LB151120C100) current ask $1.50
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