We will examine the options of Nordstrom Inc. (NYSE:JWN) as we round up another interesting week of trading stock options today. Nordstrom with a valuation of $13.38 billion is a fashion specialty retailer. As of March 18, 2013, the Company operates 242 United States stores located in 31 states, as well as an e-commerce business through nordstrom.com. Shares and options of Nordstrom is eye-catching today because the stock gained 14.73% to reach a new high of $70.71 per share before it closed at $70.55.
The stock chart above shows Nordstrom share price and its history of making new highs. You will observe that the stock has consistently made four new highs in the last one year. You will also observe that the most recent high happened barely one month ago and that the new high reached today is exponentially higher than the previous highs.
Why Nordstrom is Making New Highs
Nordstrom made new highs today on the strength of an impressive first quarter result that surpassed Wall Street’s expectations. The company reported EPS of $0.72 to beat the consensus analyst estimate of $0.68 by 5.88%. The EPS also beats the year ago-quarter EPS of $0.73 by 6.5%. Total revenue increase by 6.5% to $2.93 billion up from $2.75 billion reported in the same quarter of last year. Net Sales increased by 6.8% to $2.84 billion and Total company same-store sales increased 3.9%. Nordstrom has reiterated its full-year 2013 earnings guidance in the range of $3.75 to $3.90 above the consensus of $3.86.
New Highs is a Good Reason to be Bullish on Nordstrom.
The fact that Nordstrom recently made a new high is a good enough reason to be bullish on the stock. Many traders are usually wary of going bullish on stocks that have made new highs because they fear the possible drop in share price occasioned by pullback of profit-taking selling. However, the most-common scenario of stocks making new highs (especially when they have made 4 new highs in the last one year) is that they usually go on to make new highs.
Improving Business is Another Reason to be Bullish on Nordstrom
As shown in the quality of the first quarter results, the business landscape of Nordstrom is showing significant improvement. For instance, the company plans to expand its customer base beyond the 150 locations in the U.S as it plans to open stores in Canada.
Another business development shows how the company is setting up a stronger online and mobile presence. Nordstrom has opened a new website where people can place an order instead of walking into brick and mortar stores. The opening of an ecommerce platform will increase the reach of Nordstrom to potential buyers who will no longer be constrained by the geographical location of Nordstrom’ stores. In addition, the company has unveiled a mobile rack app for iPhones and it is expected that an android OS app will not be long in coming.
How to Trade JWN Options
I am bullish on Nordstrom with a price target of $75 and I recommend call options. The JWN Jan 2015 70.000 call (JWN150117C00070000) looks attractive as a long bullish play. Buying to open the contract will set our breakeven price for when shares of Nordstrom reach $74.65. We can expect a profit of 42.8% in August if shares of Nordstrom reach $75 on the strength of great second quarter earnings.
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