Burlington Stores Inc.: Hit and Run with BURL Calls

We will take a surprise detour in our options trading activities today as we explore options of Burlington Stores Inc. (NYSE:BURL). Burlington Stores with its small market capitalization of $2.69B is a national off-price retailer of branded apparel, operating 503 stores, inclusive of an Internet store, in 44 states and Puerto Rico. The Company offers its merchandise using an Every Day Low Price (EDLP) model with savings up to 60-70% off department and specialty store regular prices.

Burlington is set to release its second quarter (Q2 2014) results next week on September 9 after the opening bell. Therefore, I am interested in exploring the opportunity for profit when you buy BURL calls, considering the spate of analyst recommendation that the stock is garnering as September 9 approaches.

Increased Analysts’ Confidence

BURL Analysts recommendation

The chart above shows analyst recommendations on Burlington Stores Inc. within the last one to three months as complied by Market Watch.

You will observe that 9 analysts currently have a “Buy” rating on Burlington stores; one analyst thinks you should “hold” the stock and none of the analysts covered thinks you should “Sell” the stock. In the last one month, 9 analysts had a “Buy” rating on the stock, none of analysts thinks you should “hold” the stock and none of the analysts covered thinks you should “sell” the stock. In the last 3 months, 7 analysts think it is smart to “Buy” the stock, one analyst thinks you should “hold” the stock and none of the analysts covered thinks you should “sell” the stock.

I am also attracted to the fact that Zacks has a $38.42 price target on Burlington Stores as it gives the stock an “Outperform” rating and a Number 1 “Strong Buy” Zacks rank.

Optimistic Guidance

On July 17, Burlington stores raised its second quarter guidance when it announced that it expects its Q2 same–store sales to be 3-4% from the earlier 2-3%. The raising of same-store sales guidance is inspiring considering the fact that many investors had doubts that the company will be able to reach the earlier 2-3% guidance.

The company also announced that it is embarking on a major debt refinancing that will lead to a projected benefit adjusted earnings per share of $0.13 to $0.14 per share in the second half of this year. Hence, we can expect earnings to be stronger than expected as the company’s cash position improves.

Impressive Stock Performance

BURL Stock Chart

The stock chart above plots how shares of Burlington Stores have traded within the last one year and its 1-month price returns within the same period. You will observe that the company’s share price has increased by an impressive 48.26% in the last 52-weeks. More interesting is the 1-month price returns, which stands at 183.7% over the same period.

How to Trade BURL Options

An RSI Index of 72.08 tells me that we can still milk out some positive action on the stock as it enters overbought territory; hence, the reason for the “hit and run” in the title. I strongly believe that we should be able to record quick gains if the company delivers an impressive second quarter report as I hope it will. I am buying that In-The-Money BURL Dec 2014 35.000 call (BURL141220C00035000) at an asking price of $4.35.

— Daily Option Alerts

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