EOT Trade Alert – July 23, 2012

| July 23, 2012

July 23, 2012

Trade Alert:

   Buy LAZ September $25 2012 calls at $1.15 or better

Company Background:

Lazard (LAZ) is one of the world’s preeminent advisory investment banks.  The company has offices in 16 countries around the globe that date back to 1848.  Lazard provides advisory services which include merger and acquisition advice, asset management, and restructuring for corporations, partnerships, institutions, governments and even individuals.  This makes them an interesting mix of businesses. Financial advisory contributes 51% of operating revenue, asset management 47%, and corporate the remaining 2%.  Lazard is well diversified by region, with a significant portion of its operating revenue generated outside North America.

Short-Term Catalyst:

As if you don’t already know, we have some global economic issues floating out there in the world today.  They span from the United States all the way around the globe to Russia.

However, believe it or not, one day things will get worked out.  And I think for the better.

When they do, I believe that mergers and acquisition transactions will begin to improve.

The fact is that the M&A market for the corporate market has been weak in 2011 and into the first half of 2012 as macroeconomic headline risks, CEO hesitancy to do deals, and regulatory uncertainties have clouded the M&A outlook for investment banks.

Nonetheless, I think M&A activity will soon pick up.

And one stock that will greatly benefit from this activity is LAZ.

Increased cross-border activity from foreign corporate and sovereign buyers active in the US market and US multinationals have forced them to sit on large amounts of cash and cash equivalents outside the US and not willing to repatriate back home and pay corporate income taxes.

And Lazard has one of the largest geographic footprints among independent boutique investment banks, which will well-position them when global M&A accelerates.

Lazard has been consistently profitable in the past.  Its diversified revenue stream should enable the company to maintain profitability in the future.

Finally and most importantly, LAZ’s company assets under management are largely equity based.  This will experience growth along with overall market improvement.

Bottom line…

While investors continue to worry over a global macro slowdown, institutional management has been quietly repositioning the overall franchise.  They’ve been able to focus on the continuing strong growth of M&A in the emerging markets.

Lazard maintains a strong competitive position and earns significant fees from private deals and sovereign advisory services that do not appear to lag any competitors statistics.

So, as the economy recovers, higher corporate executive confidence and the ability to access financing will lead to more M&A activity.

This is a perfect set up for LAZ and a perfect set up to buy some call options on this name.  This way you can profit as M&A activity demand increases.

Trade Details:

Underlying Stock Symbol: LAZ
Current Bid-Ask Price: $0.90 – $1.05
Option “Buy Up To” Price: $1.15
Break-Even On Stock At Expiration: $26.15
Maximum Risk Per Contract: $115

Exit Strategy:

LAZ is currently trading at $24.15 per share.  Resistance levels will be at $27.00 and again at $29.00.  Don’t forget, we want this stock to move higher.  Support levels will be at $22.50 and $21.50.  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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