Analysts have been bullish on Internet service provider Web.com Group (WWWW) in recent months, although one bearish analyst downgraded the stock from “Buy” to “Neutral” in late June.
The downgrade was then followed by an upgrade from “Neutral” to “Buy” two days later. Even better, the Wall Street firm raised its price target from $20 to $30 on shares of WWWW.
Before those mixed opinions from June crossed the tape, there were three upgrades in May following WWWW’s first-quarter earnings beat of $0.03 in late April. Revenues topped forecasts as well, with Web.com also raising its second-quarter revenue and earnings expectations.
On May 5, one firm upgraded WWWW shares from “Neutral” to “Buy” and raised its price target from $17 to $27. Less than a week later, another brokerage firm upgraded the stock to a “Buy” from “Hold” and raised its price target from $18 to $28. In late May, another analyst reiterated their “Overweight” rating with a price target of $32, which was raised from $25.
The company is scheduled to announce earnings in late July/early August. Wall Street is expecting $0.57 a share on revenue of $138 million. Web.com has topped expectations in the past three quarters and has been buying back its stock while lowering debt.
I like using WWWW call options to play a possible run past $30.
Buy to open the WWWW September 25 calls at current levels.
These are the regular monthly options that expire on Sept. 18. My exit target for the calls is $2.40, I do not have a stop loss in place at this time.
This is an aggressive trade, but I think it will be one that pays off with a huge return if WWWW can clear $25-$26 over the next few weeks. A move above $24.50 should lead to a near-term run to $26. Support is at $23.50-$23 and the 50-day moving average.
Although I’m bullish on the company’s fundamentals and chart, I would like to see a breakout come ahead of earnings to reduce some of our exposure to the event.
Also, the Alcoa (AA) Aug 11 puts I recommended last week ahead of earnings meandered after the announcement. I wanted to see if they would get a second wind after Wall Street had digested the news, but they seem to be stalled. Go ahead and take the modest profits at market (current levels are around 55 cents).
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