LB/Batman – Like HBI, very steady sales and profits means I'm very comfortable at 10x, so let's say $7Bn as a floor, which is where we are now ($26) and, of course, any good news can put them up to 15x so range should be from $26 to $39 and LOOK – that's the range:
I wish this stuff were more complicated but it isn't…
| Year End 03rd Feb | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | TTM | 2019E | 2020E | CAGR / Avg | |
| $m | 10,459 | 10,773 | 11,454 | 12,154 | 12,574 | 12,632 | 13,208 | 13,298 | 13,480 | +3.8% | |
| $m | 1,573 | 1,743 | 1,953 | 2,192 | 2,003 | 1,728 | 1,423 | +1.9% | |||
| $m | 753 | 903 | 1,042 | 1,253 | 1,158 | 983 | 768 | 749.5 | 743.8 | +5.5% | |
| $ | 2.54 | 3.05 | 3.50 | 4.22 | 3.98 | 3.11 | 2.39 | +4.2% | |||
| $ | 2.81 | 3.05 | 3.50 | 4.22 | 3.98 | 3.11 | 2.39 | 2.70 | 2.73 | +2.1% | |
| % | -7.2 | +8.7 | +14.7 | +20.5 | -5.7 | -21.9 | -27.2 | -13.2 | +1.04 | ||
| x | 9.08 | 11.8 | 10.5 | 10.4 | |||||||
| x | n/a | n/a | 10.0 | 2.34 | |||||||
| Profitability | |||||||||||
So what's our position in the LTP:
| Short Put | 2020 17-JAN 37.50 PUT [LB @ $26.92 $-1.31] | -15 | 5/11/2018 | (372) | $-14,550 | $9.70 | $2.35 | $-13.45 | $12.05 | – | $-3,525 | -24.2% | $-18,075 | ||
| Long Call | 2021 15-JAN 27.50 CALL [LB @ $26.92 $-1.31] | 50 | 9/21/2018 | (736) | $34,750 | $6.95 | $-1.55 | $5.40 | – | $-7,750 | -22.3% | $27,000 | |||
| Short Call | 2021 15-JAN 35.00 CALL [LB @ $26.92 $-1.31] | -50 | 9/21/2018 | (736) | $-21,650 | $4.33 | $-1.38 | $2.95 | – | $6,900 | 31.9% | $-14,750 |
So we're just playing the range and the $27.50s are now $5.50 and the $22.50s are $7 so not worth rolling (don't like to spend more than $1.25) so we just leave it alone. The spread is a net $1,450 credit and pays $37,500 at $35 so 27x on cash if all goes well and, if not, we only obligate to own 1,500 shares at $37.50 and we can already roll the 15 short LB 2020 $37.50 puts at $12 ($18,000) to 20 of the 2021 $30 puts at $8 ($16,000) so that's a move we should make for the LTP but we're going to sell the 15 2021 $30 puts for $8 and leave the short 2020 $37.50 puts with a stop at $14 ($21,000) so we risk $3,000 but a nice recovery will make us a ton of money!
As a new trade in the OOP, let's add the following:
- Sell 5 LB 2021 $27.50 puts for $6.70 ($3,350)
- Buy 15 LB 2021 $20 calls for $9 ($13,500)
- Sell 15 LB 2021 $27.50 calls for $5.50 ($8,250)
That's net $1,900 on the $11,250 trade so $9,350 (492%) upside potential for a trade that's essentially in the money to start so we're just waiting to get paid on this one but we do have room to sell 5 short-term short calls if we get a good pop.
AEO/Batman – $200M in earnings for $3.4Bn is 17x so I'm not going to warm up to them when I can buy LB or HBI at 6x (and now M too). I don't bet on whether or not I like a marketing campaign as those change every season – as do the fashions. I look for management teams that deliver results consistently. AEO was ridiculously priced and now reasonably priced but I'd rather buy things that are ridiculously low while I can.
