Unlock: Vector Group (VGR) Trade Idea
(This trade was issued three weeks ago on June 17. Trade was closed today for $1.55 or 93% gain)
Current Price: $22.70
Stop Loss: $21.80
Time Duration: 65 Days
Trade Idea: Buy VGR August 22.5 Calls for $0.80 debit or less.
Alternate Trade Idea: Buy VGR common for $22.70. We like this considering very attractive 7.1% dividend yield.
Unusual buyers of 2,500 August 22.5 calls today for up to $0.75. Adding to position they started building originally back in March as remains in 3,000 open interest.
Investment Thesis – Largely under-followed with a profitable cigarette business, a 71% stake in fast-growing realtor Douglas Elliman, and valuable real estate and public equity holdings, Vector Group is an interesting investment opportunity, in our view. Based in Miami, FL, VGR is run by an incentivized management team—insiders own a 30% collective stake—that is focused on shareholder value and returns cash to shareholders through large dividend payments. We believe the stock could increase in value, as the company continues to grow profits in tobacco, enjoys a real estate recovery, consolidates and/or monetizes its Douglas Elliman stake, returns cash to shareholders, and makes a concerted effort to attract additional investor interest.
Catalysts / Takeaways from Analyst Meeting – Yesterday the management conducted an analyst meeting and the following bullet points came out of that:
— Liggett took another price increase of $0.07/pack for the majority of its brands. This June increase could lead to ~$25M of incremental annual revenues. The company did not take a price increase on Eagle 20’s, as it looks to grow market share before it eventually raises prices.
— VGR could begin to aggressively monetize its real estate holdings, with The Marquand, 10 Madison Square Park West, and 11 Beach Street next to be sold. The company is eager to establish a strong track record so it can increase its leverage capacity to pursue additional projects at 20-30% IRRs.
Technicals – Chart is starting to breakout and we like how it sets up from here for a gradual grind higher.