Retailer Men’s Wearhouse (MW) will be reporting its second quarter results after the market closes on September 11. Going into the report, analysts expect earnings of $1.23 per share, up from $1.15 during the same period last year. The stock has been a strong performer this year, gaining 23.7% year to date.
The upcoming earnings report will be the first one without founder George Zimmer at the helm. Zimmer built the company from one store into the nation’s largest men’s boutique clothing retailer. His resignation came a week after the company reported a 23% jump in first quarter earnings and a 5% jump in sales. The company improved its gross margin during the quarter to 45.0% from 43.3% during the same period last year. The company reaffirmed its full year guidance, and it very likely that second quarter earnings will fall in line, or possibly a few pennies above analyst estimates.
This expectation from Men’s Wearhouse, and the state of the overall stock market makes for a modest options call which should generate a nice 40% profit.
Where Men’s Wearhouse Stands at the Moment
Men’s Wearhouse opened at $38.78 on Tuesday. Men’s Wearhouse has a one year low of $27.42 and a one year high of $41.03. The stock’s 50-day moving average is $38.95 and its 200-day moving average is $35.46. The company has a market cap of $1.951 billion and a P/E ratio of 14.24.
These figures bode well for an expected boost in share price in the near future and a nice return on the options call mentioned.
A Look Back
Men’s Wearhouse last released its earnings data on Wednesday, June 12. The company reported $0.65 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.55 by 10 cents. The company had revenue of $616.54 million for the quarter, compared to the consensus estimate of $604.74 million.
During the same quarter in the previous year, the company posted $0.52 earnings per share. The company’s revenue for the quarter was up 5.1% on a year-over-year basis.
On average, analysts expect Men’s Wearhouse to post $2.77 EPS for the current fiscal year and $3.02 EPS for the next fiscal year.
The earnings growth is definitely far above industry average.
Market Capitalization is Important to MW
Men’s Wearhouse, being a component of the Russell 3000, has a larger market capitalization — $1.94B — than the smaller end of the S&P 500. This is an important data point for investors, as comparing market capitalization (factoring in those share counts) creates a true “apples-to-apples” comparison of the value of two stocks. Another reason market capitalization is important is where it places a company in terms of its size tier in relation to peers — this can have a direct impact on which indices will include the stock, and which mutual funds and ETFs are willing to own the stock.
And Men’s Wearhouse certainly measures up in this area.
Analysts Like MW
Analysts at Stifel Nicolaus reiterated a “buy” rating on shares of Men’s Wearhouse and now have a $40.00 price target on the stock. Also, analysts at Wedbush raised their price target on shares of Men’s Wearhouse from $36.00 to $43.00 and now have a “neutral” rating on the stock.
Men’s Wearhouse exceeded analysts’ EPS expectations by more than 18% in the first quarter, but fell short in the previous two periods. The consensus EPS estimate for the most recent quarter slipped by a penny in the past 60 days. So far, modest annual growth of EPS and revenue is forecast for the current quarter.
Therefore, this following modest options call is quite appropriate.
OPTIONS TRADE: Buy the MW Nov 2013 40.000 call (MW131116C00040000) at or under $1.90, good for the day. Place a protective stop limit at $0.75 and a pre-determined sell at $2.70.
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