Unlock: Markit (MRKT) Trade Idea
Sector: Professional Information Services
Current Price: $26.81
Stop Loss: $25.00
Time Duration: 122 Days
Trade Idea: Buy October 25 Calls for $2.40 or less.
Fundamentals – The consensus EPS and Revenue estimates for FY2015 and FY2016 have gradually moved up by 9% in the last 6 months, yet the stock continues to consolidate in a tight range, inching on breakout near 52-week high. We believe its time will come, the stock will breakout and make a run for $30+. The last two quarters the company beat on EBITDA estimates as organic growth accelerated to 9% from 8% sequentially. Despite some forex headwind, revenue growth came in 180 bps point higher than management’s own guidance and the consensus view. Management reiterated full year guidance of 5-7% revenue growth with 40% EBITDA margin. We believe the quarter speaks for strength in the underlying business and fundamentals will push the stock to breakout as the story gets recognized.
Additionally, MRKT highlighted a healthy M&A pipeline in earnings call, suggesting a ramp up in deal activity relative to the two deals consummated in 2014 (3.1% contribution to revenue in 2014). Accounting for those two deals in EPS forecast, the forward FY2015 PE ratio now stands at 19.3x, trough valuation since the IPO. Attached here is Citigroup research from May 13 highlighting the bullet points from last quarter.
Technicals – The chart is setting up for breakout through $27.50 resistance. We will use $25.00 as stop loss, the level where it bounced after last earnings report. Target is $30.00.