Every Once in a While
They call it the "Ugly Stick." Every once in a while, the stick is released from it's hiding spot to do some damage. Descending upon unsuspecting shareholders of a stock bearing a negative headline, the stick swings for the fences. Left in its terrible wake are the anguished, the vanquished. Little left to show but for the weeping and the gnashing of teeth.
So, it is that on the first Tuesday morning in April, that Walgreens Boots Alliance (WBA) reported the firm's second fiscal quarter. Non-GAAP EPS missed. Strike one. Revenue generation missed. Strike two. Full year EPS guidance? Do I need to say it? You already knew. There would be no joy in Mudvillle on Tuesday morning. Strike three. That FY 2019 EPS projection has been dragged down to flat for the year from what had been 7% to 12%. Ugly.
A quick look at the consolidated, condensed statement of earnings reveals what we were looking for. As clear as day. Margin compression. Sales up, gross profit down. Operating Income way down. EBIT way down. The shares? Down about 12% as I write this missive. I have not had a position in this name. I had been long CVS Health (CVS) , a competing name with a similar chart. Thankfully, I had only taken that position in March and bailed after seeing the CEO on television. That saved me a buck or two.
What we need to know here, simply, is if opportunity is knocking as this stock suffers a bloodletting?
Though the name has seen it's up and downs, I think the possible re-establishment of the lower trend line after 10 months is alarming to say the least. Might this be the bottom? It might. Every year, since the Jets lost to the Chiefs in the 1969 AFL playoffs, I think the Jets still have a shot. That said, the smart money bets on some other, any other team.
The idea? Think the stock moves by two bucks before Friday? I don't usually go to the purchase of options straddles, but with the last sale of the stock trading around $55.50, a $55.50 straddle currently goes for roughly $2 net debit. Here's the play, in minimal lots.
-Purchase one April 5th WBA $55.50 call (approx. value: $1)
-Purchase one April 5th WBA $55.50 put (approx. value: $1)
Max loss: $2, only if the shares close at $55.50 on Friday.
Max gain: Anywhere the stock goes by this Friday's close beyond $57.50 or $53.50 would be the trader's profit.
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