July 7, 2016 | 8:33 AM by Fahad Khalid | fkhalid@jaguaranalytics.com

Unlock: Whitewave Foods (WWAV) Trade Idea from June 29

This trade idea was sent to JaguarOptions Pro clients on June 29. Stock is ripping higher by +19% today after Financial Times reports M&A discussions with Danone. To learn more about our approach and how you can become a successful trader, sign up for 2 week trial and test drive live chat room with some of the best traders: SUBSCRIBE

Whitewave Foods
Ticker: WWAV
Sector: Food Processing
Current Price: $45.15
Target: $50.00
Stop Loss: $42.73
Time Duration: 114 days

Trade Idea – Buy WWAV October 47.5 Calls for $2.40 or less (bid/ask currently 2.25 x 2.40)

Yesterday, one trader bought the following bullish risk reversal:

– 3,000 Jan’17 37.5 Puts sold to open for $1.55 credit
– 3,000 Jan’17 47.5/55 Call Spread bought for $2.15 debit

WWAV has been consistently subject to M&A rumors. While I am not counting on that as being main reason for getting involved with call options, it can create some significant upside to stock if materializes and should keep a good bid under the stock over time. Main reason is last week CVS announced that it was expanding its better-for-you food assortment from its 500 store pilot launched in 2015 to more than 2,900 stores nationwide. As part of this expansion, CVS plans to allocate ~25% of front checkout space to better-for-you snacks and Vega One bars will be a part of this set, which is produced by WWAV. This should have much better than expected trickle down positive impact on bottom line, even though initially it will be small part of total sales. Over time Vega will evolve its assortment in the $8.6B nutritional powders, bars and ready-to-drink market.

Separately, highlights from prior quarter as reported in March: WWAV reported 1Q EPS of $0.28 vs. $0.26 consensus. Revenues were up ~14% y/y to $1.04B and included strong organic growth across all brands ex-Earthbound. The revenue beat was mainly attributed to an increase in volume, a small benefit from pricing as well as strength in acquired businesses. WWAV expanded consolidated EBIT margin ~50 bps y/y to 8.7%, benefitting from improving cost leverage and supply chain efficiencies. WWAV raised FY16 EPS guidance from $1.35 to $1.40. Management now expects 11% y/y net sales growth (previously 10.5%). Adjusted operating income is expected to increase throughout FY16 (75+ bps total y/y expansion) as sales of Earthbound Farms slowly rebound in 2H16 and the company completes capacity expansion efforts.

There was everything to like about that quarter. Plus it belongs in Consumer Staples segment which continues to outperform the broader market. US-centric staple to be more precise, a key theme working since Brexit. I believe the pull back recently presented a buying opportunity, looking for breakout through $47.50 in coming week with ultimate target of $50 as the pace of higher-highs and higher-lows continues. Any M&A could shoot the stock higher towards $60+.


WWAV Chart


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