Accenture is very close to breaking out to a new high after consolidating for the last couple weeks from the prior high. We are going to buy that breakout.
L Brands pulled a head fake on us last week when the short recommendation was cancelled after a four-day rebound. We may have the last laugh after shares rolled over to retest the lows.
NEW DIRECTIONAL CALL PLAYS
ACN - Accenture PLC - Company Description
Accenture provided management consulting, technology and outsourcing services worldwide. It operates in multiple segments including Communications, Media & Technology, Financial Services, Health & Public Services, Product support including supply chain management, Resources including chemicals, energy, commodities and utilities. The company was founded in 1989 and has risen to a $73 billion market cap. Accenture employs about 373,000 people in 120 countries.
Basically, Accenture helps other companies become more profitable. When Mondelez (MDLZ) wanted to improve its margins they called Accenture and implemented their suggestions. The new systems saved $350 million in the first year and is expected to save Mondelez more than $1 billion over the next three years. Accenture does this worldwide for almost any business in any sector.
This week they sold a 60% stake in their Duck Creek Technologies division to private equity firm Apax Partners. The joint venture will accelerate the innovation of claims, billing and policy administration software for the insurance industry leveraging advanced digital and cloud technology. They will invest in Duck Creek On-Demand, a native Software as a Service capability delivered through the cloud. Approximately 1,000 insurance and insurance software specialists will join the new venture. Accenture acquired Duck creek Technologies in 2011.
The key for Accenture is not specifically the Duck Creek venture but the rapidly expanding scope of the company. Nearly every day there is some new press release where they are expanding into new markets and new endeavors. This is what IBM and Hewlett Packard wish they were.
Earnings are June 23rd.
Accenture rallied to a new high in early April at $116.35. Shares paused with the market and consolidated their gains. Since April 8th shares have begun to move back to that high and could breakout at any time. I am recommending we buy that breakout over $116.35 because shares could begin a new leg higher, market permitting. Options are cheap!
With an ACN trade at $116.65
Buy June $120 call, currently $1.30, initial stop loss $113.45
NEW DIRECTIONAL PUT PLAYS
LB - L Brands - Company Description
We tried to play LB on the 13th but shares rallied unexpectedly for three days and I cancelled the play. Shares have since rolled over and are again threatening to collapse. I recommend we try it again.
L Brands operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. Everybody knows of Victoria Secret. They are the premier lingerie retailer in the country. They offer products under the Victoria's Secret, Pink, Bath & Body Works, La Senza, Henri Bendel, CO Bigelow, White Barn Candle Company and many other brand names. They have 2,721 stores in the USA, 270 in Canada and more than 700 international stores in 70 countries.
Two weeks ago the company said it was cutting 200 jobs and restructuring into three divisions. Those will be lingerie, beauty and the teen brand PINK. The company said it was getting rid of multiple merchandise categories but they did not say which ones. The online business will be revamped and integrated into the main business rather than operating as a separate entity. They plan on reducing promotions and eliminating the catalog. Citigroup said eliminating the catalog could be a nightmare that could have serious repercussions. JC Penny's revived its catalog last year after seeing sales decline after it was discontinued. There is a rumor they are eliminating swimwear, a $500 million a year category. They plan on utilizing the retail space for sports clothing.
The company reported March sales growth of 5% to $1.027 billion. Same store sales rose +3%.
Goldman Sachs downgraded the stock from buy to neutral saying the restructuring and elimination of multiple merchandise lines would impact sales in the short term. Two weeks earlier Credit Suisse cut them from buy to neutral and JP Morgan made the same downgrade last quarter.
Earnings May 18th.
Shares fell off rather steeply ahead of the sales reporting and Goldman downgrade and then hit a seven-month low on the downgrade. Many traders thought it was a buying opportunity and shares rebounded promptly in last Tuesday's short squeeze. The rebound lasted four days and now the negative trend has returned.
I am recommending we buy a put on a trade under today's low at $77.25. If the stock continues to decline it will trigger the position, otherwise we are just watching. If shares fall below that $76 print from April 12th there is a lot of air before the next support at $65.
With a LB trade at $77.25
Buy June $75 put, currently $2.00 Initial stop loss $81.05.