Nielsen Holdings plc (NYSE:NLSN) is one of the most well known providers of market research and analytics, and based on its technical formation, I think the company is going to push higher in the run-up to earnings.
We’ve all heard of television ratings — sometimes called Nielsen ratings — one of the most ubiquitous forms of market research NLSN performs, but NLSN has been tracking all kinds of consumer data for nearly 100 years.
The American economy is driven by consumption, and understanding the consumer’s buying habits and media preferences is critical. NLSN is just one of many companies that provides and analyzes consumer data, but recently, it’s been growing.
Acquisition of Precima
In early January, NLSN acquired Precima, a retail analytics company that uses data to help brands boost sales.
According to the associated press release, Precima’s Transaction Log (TLog) and Loyalty/Customer Relationship Management (CRM) use artificial intelligence (AI) and machine learning to help create personalized shopping experiences.
Those may seem like buzzwords, but the development of AI and machine learning technology is extremely important for data companies because it can increase their output and drive growth.
To be clear, a press release like the one I referenced is going to paint the acquisition in a positive light. But acquisitions usually hurt the buyer’s share price in the very short term, regardless of how positive the acquisition may be.
The day this acquisition was announced, NLSN fell by 0.55%, but that isn’t the full picture. Since then, the stock has gradually pushed higher, and that’s likely because investors expect good things from NLSN’s fourth quarter earnings report.
Making Higher Lows
If you look at the chart below, you can see that from late March 2019 to early November 2019, NLSN was in a steady downtrend, making lower highs and lower lows.
Daily Chart of Nielsen Holdings plc (NLSN) — Chart Source: TradingView
Part of the company’s problems were earnings related. Though NLSN beat its first quarter 2019 earnings estimates, its earnings per share were down by 12.5% year-over-year. What turned the stock around was finding a bottom in November and providing a slightly more positive outlook.
NLSN reported third quarter earnings on Nov. 7, 2019, and in intraday trading it dropped below $18 per share. But the company beat expectations for the third time in a row, and in its guidance, it increased its expected earnings for 2019. That, paired with finally finding a bottom, helped turn the stock around.
Investors haven’t been rushing into the stock, but in mid-January — after the Precima acquisition — they pushed it above $22 per share briefly.
NLSN is scheduled to report earnings on Feb. 27, and because it has beat expectations three times in a row, I think investors may be expecting another surprise. That could lead the stock to challenge resistance in the $22-$22.50 range in the short term.
With a call debit spread traders can buy a call option with a strike price set at $22, but they don’t have to pay full price. Once NLSN pushes above $22 per share, they should have a chance to collect a profit.
Using a spread order, buy to open the NLSN Aug. 21st $22 call and sell to open the NLSN Aug. 21st $23 call for a net debit of about $0.35.
Note: Be sure you are opening the monthly NLSN options that expire on Friday, Aug. 21, 2020.
About Call Debit Spreads
A debit spread is simply a way to lower the cost of buying options, as the option that you sell to open (short) helps offset the cost of the option that you buy to open. Therefore, this call debit spread is a way to lower the cost of buying bullish call options. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a debit spread; contact your broker directly for specific requirements.
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