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Insider Activity: USA Technologies (USAT)

Posted: 30 Sep 2019 03:00 AM PDT

Major holder buys another 1.8 million shares.

Hudson Executive Capital LP continues to buy massive blocks of shares at USA Technologies (USAT). Following a recent buy, the company picked up another 1.8 million shares on September 26th, increasing their stake by 21 percent. The fund paid $8.2 million for the block of shares, and now owns over 10.1 million shares of the company.

With a float of only 37 million shares, Hudson now owns over 27 percent of shares outstanding.

The fund may be vying to buy up 50 percent of the company to assume control, either to take the company private, or to benefit from a sale of the company to another fund.

Although shares have been rising thanks to these massive insider buys, shares of USA Technologies are still down over 43 percent in the past year and the company is still losing money at this time.

Action to take: The level of insider buying at this relatively small company remains intriguing, and the massive buys suggest a larger move ahead for shares either from the company's profits improving or from a sale or action to take the company private.

Investors should consider buying shares up to $5.00, about where shares now trade. Speculators have a limited number of options, but could buy the January 2021 $5 call options to bet on a higher move from here.

 

Micron Upgraded After Earnings Report

Posted: 30 Sep 2019 03:00 AM PDT

Analysts see upside in spite of company's lowered guidance.

Although shares of Micron (MU) dropped nearly 11 percent following its most recent earnings report, many analysts were quick to point out the long-term potential in shares.

Investment firm Needham reiterated its buy rating on shares following earnings, and raised the price target on shares from $50 to $60. At current prices, that implies a 33 percent upside for Micron shares in the coming months.

Micron did beat earnings and revenue estimates when it reported, but the company gave lowered guidance as a result of NAND inventory and related pricing, leading to the market decline. However, analysts like Needham noted that the industry-leading company has several catalysts that could boost shares in the next memory cycle, and the 5G network rollout could be a winner for the company.

Other analysts also increased their price targets, with Rosenblatt raising its price target to $80 from $60, about 78 percent higher than where share now trade. Some have a target as high as $90.

Action to take: We agree that shares are undervalued, but they seem in no rush to break past the high $50 range. Investors may want to consider buying shares here , then selling covered calls on those shares when the stock gets to the low or mid-$50 range.

Following the severity of the post-earnings selloff, traders may want to consider buying a call option to bet on a recovery in shares. The April 2020 $50 calls look attractive, with the potential to move 40-50 percent higher in the coming weeks.

 

Guggenheim Partners Upgrades Western Union

Posted: 30 Sep 2019 03:00 AM PDT

 

Electronic payments company seen as buy.

Guggenheim Partners raised their rating on Western Union (WU) from neutral to buy, and set a price target of the company at $27. That is about a 20 percent increase from where shares recently trade.

The upgrade comes after Western Union has partnered with Amazon to launch Amazon PayCode, allowing for shoppers to pay for online purchases at any of Western Union's 15,000 locations, which is rolling out in the next few weeks ahead of the holiday season.

Best known for being a telegram company, Western Union sent its last telegram in 2006 and pivoted to providing financial services and electronic payments. Shares trade at 11 times earnings and have already beaten the overall market this year, with an 18 percent rally in shares.

Action to take: Shares look attractive at current prices, and the electronic and digital payment sector as a whole likewise has a lot of potential growth ahead.

Investors may want to pick up shares anywhere under $23.50. The partnership with Amazon, which could allow for lower-income customers to make online purchases that they haven't in the past, could help fuel growth at the company. Shares pay a 3.6 percent dividend yield at current prices, giving stock traders a decent cash return on top of prospective capital gains.

Traders should look at the February 2020 $24 calls, which could double or even triple if Western Union gets a huge fourth-quarter bounce as a result of its Amazon partnership.

 

Unusual Options Activity: CenturyLink (CTL)

Posted: 30 Sep 2019 03:00 AM PDT

Traders bullish on telecom in coming weeks.

The October 18th $13.50 call options on CenturyLink (CTL) saw nearly 4,000 contracts trade, against a prior open interest of 360, an 11-fold surge in volume. With shares at $12.75, the option will trade in-the-money if shares rise 5.8 percent in the next 18 days.

Given how shares have traded as high as $22 in the past year, the option stands a reasonable chance of heading higher in the next few weeks.

With shares of the company trading under 10 times earnings and yielding over 7.7 percent following a 40 percent decline in the past year, the telecom company looks like an attractive value play on those simple metrics.

However, the company is currently operating at a loss following declining growth and asset write-downs, which is why shares have been on the decline. A recovery in the underlying business may be underway, but the company next reports earnings in November, after the October options expire. The telecom space as a whole has struggled to provide decent returns lately.

Action to take: While the call options look attractive, shares are likely to make a bigger move following its next earnings report in the second week of November. Traders may want to consider calls further out, such as the April 2020 $14 call options, to bet on the continued rally in shares.

Investors can pick up shares up to $13 and enjoy the company's large dividend while waiting for a share price recovery.

 
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