Bearish Burger Trade on the Back Burner, Synchrony Seals a Friendly Deal and more…

I reluctantly suggested selling the McDonald’s (NYSE: MCD) and Wendy’s Company (NYSE: WEN) puts at a loss this morning.

As many subscribers have heard me lament before, options trades are difficult. The stocks initially fell a bit but then got caught up in a bullish move by competitor Restaurant Brands International (NYSE: QSR).

QSR, the parent of Burger King, issued an early release of fourth-quarter sales in conjunction with the notice of the departure of its CEO. Notably absent from the release is any commentary on profits, which could be squeezed due to its promotions during the quarter.

This release was unexpected and threw a wrench into my options planning. The February expiration date chosen for these puts is shorter than I normally like but there were no planned events from other related companies before that time.

Alas, this is the way the market works. I still believe the fundamentals for the group are poor but this was a losing trade. I thought it best to collect any premium in the puts and reconvene at a later date with another trade.

The market behaved pretty well last week but picked up its old habit of worrying about the future. Now that the good news is behind us (a temporary 3-week opening of the government), investors are wringing their hands about that near term deadline.

I’m spending some time in a deep dive review of the portfolio for some seasonal pruning. More to come.

Around the Portfolio:

Abbvie (NYSE: ABBV) suffered last week due to weaker than expected sales of its top drug, Humira. Biosimilar competition hit pricing and forced the company to lower first quarter guidance.

Despite the bright spot of sales in its hepatitis C franchise, which brought in $862 million globally compared with analysts’ estimates of $801 million, investors chose to focus on the fear that the Humira franchise is unraveling faster than hoped. My bullish take on the stock is because of its success with Mavyret, its hep C drug that was approved last year and has carved into demand for rival Gilead Sciences similar drug.

BJ’s Wholesale (NYSE: BJ) stock was upgraded to Outperform from Market Perform at Wells Fargo who also increased its price target from $24 to $29.

The analyst noted: “While concerns about sluggish comps and general skepticism have held us back, growing confidence in the near-term story (stoked in part by our recent management meeting), the ever-present allure of the turnaround opportunity, and its defensive positioning have aligned to raise our optimism.” It is usually a good sign when an analyst leaves a management meeting with some bullish signals.

Harsco Corporation (NYSE: HSC) announced that its Metals & Minerals division has signed a $247 mln contract with HBIS Laoting Steel, one of the leading steel producers in China. The 15-year agreement further expands Harsco’s partnership with the company.

Synchrony (NYSE: SYF) enjoyed a sizeable bounce last week after announcing an extension of its strategic partnership with Sam’s Club, a segment of Walmart (NYSE: WMT).

After a dispute with Walmart last summer, the renewal of this contract carries significant bullish weight. Last July Walmart announced it would replace Synchrony with Capital One for its private label Walmart credit cards.

As part of the newly-announced deal, Synchrony will continue offering Sam’s Club members financing options through the Sam’s Club-branded credit cards. As part of the extension, Synchrony will continue to manage and service the credit card programs for Sam’s Club members across the retailer’s nearly 600 clubs.

Synchrony also announced that it has reached an agreement regarding the sale of the Walmart loan portfolio currently serviced by Synchrony. The portfolio is expected to transfer late in Q3 or early Q4 of 2019. As part of the deal, Walmart has agreed to dismiss its lawsuit against Synchrony.

According to Synchrony’s president and CEO, Margaret Keane, the company is “very pleased to have reached these agreements. Obtaining certainty around the Walmart portfolio and a renewal on Sam’s Club is a great outcome for the company… This extension is the latest in a series of renewals and key customer initiatives.”

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