EOT Trade Alert – August 13, 2012

| August 13, 2012

August 13, 2012

Trade Alert:

   Buy BKI October $30 2012 Calls at $2.00 or better

Company Background:

Buckeye Technologies (BKI) is the leading manufacturer and provider of specialty cellulose and absorbent fibers used in a variety of consumer products.  They produce value-added specialty products.  Most of their products are used in technically demanding niche markets where their products provide a competitive edge.  Its products are used in the manufacturing of items including, sausage casings, high-performance tires, industrial filters, cotton balls, and even disposable diapers.  The company operates facilities in the United States, Canada, Germany and Brazil. However, revenue is derived from over 60 countries.

Short-Term Catalyst:

As population growth continues in all ways, especially through newborns, the demand for BKI products will continue to increase at a rapid pace.

For example…

One of BKI’s products is used in baby wipes.  And analysts expect this market to grow significantly over the short and long term.

In addition, the fibers BKI produces that are used in currency papers and ethers are also expected to grow dramatically as the global economy begins to heal.

As a result, I think the company has an insurmountable lead over its competitors.

Now, let me tell you another interesting part to this company.

The company is in very good financial shape.

Analysts have their eye on this company… for the fiscal year ending 2012, the company is estimated to grow revenue by over 2%.

This is then estimated to be followed by 5%-7% revenue growth in 2013.

In addition, analysts estimate that margins will increase next year by 1.8% after a 0.5% increase this year.

This is due to higher capacity utilization which should help margins as demand for these products continue to grow.

Finally, Buckeye Technologies EPS growth for 2012 is supposed to reach $2.75 per share, up from only $2.33 a share in 2011.  And amazingly enough, the EPS growth for 2013 is estimated to a whopping $3.30 a share.

In other words, if these analysts’ numbers are correct, the company should be worth around $38 a share, up $10 from its current price of $29.85 per share as of Friday’s close.

Bottom line…

I think BKI’s large market share in these niche markets will allow it to generate strong profit margins in the time ahead.

Its moves to reduce exposure to the commodity markets and increased output of specialty products should also bolster margins.

I also think that the company’s debt reduction will allow them to pursue growth opportunities which will lead to further dividend increases.

Lastly, a major project to reduce energy costs has been completed.  And this will certainly be a huge factor in revenue growth moving forward.

BKI is in the perfect position to grow its business and a perfect time for us to scoop up some call options in this name to profit along with the company.

Trade Details:

Underlying Stock Symbol: BKI
Current Bid-Ask Price: $1.75 – $2.00
Option “Buy Up To” Price: $2.00
Break-Even On Stock At Expiration: $32.00
Maximum Risk Per Contract: $200

Exit Strategy:

BKI is trading at $29.85 per share.  Resistance levels will be at $34.50 and again at $36.00.  Don’t forget, we want this stock to move higher.  Support levels will be at $27.50 and $26.00.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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