Application-specific product and solutions provider Methode Electronics, Inc. (NYSE: MEI) reported its fiscal 2016 fourth-quarter results that were above the analysts’ expectations. However, the share price fell in the past two trading days. Yesterday, the share price closed at $30.64, down $1.30 or 4.07% from the prior close. Any dip in the share price should be construed as an opportunity to go long because of the following reasons.
The Chicago, Illinois-based company reported a decline in the fourth-quarter net sales to $212.80 million, from $227.30 million in the prior-year similar quarter. However, the revenue exceeded Wall Street’s estimates of $201.50 million.
For the fourth-quarter ending May 2016, the net income was $22.6 million or $0.60 per share, compared to $26.50 million or $0.68 per share in the last year’s similar quarter. The reported net income was above the Thomson Reuters consensus estimates of $0.52 per share.
Methode’s net income was affected by a decline in revenue across all the business divisions. Higher discounts offered in the automotive segment also contributed to a decline in the quarterly net income.
At the outset, the earnings report looks unimpressive. However, a careful study of the report reveals that the consolidated gross margin for the full year 2016 has increased to 26.3% from 24.8% in 2015. Furthermore, the debt levels of the company are reasonable.
The company also gave an encouraging outlook for fiscal 2017. Methode anticipates fiscal 2017 revenue to range between $820 million and $845 million. The lower limit of the range is higher than the fiscal 2016 revenue of $809.1 million. Methode also expects fiscal 2017 earnings in the range of $2.11 to $2.35 per share.
The company announced that it expects a rise in the sale of its Dabir Surface products in the latter half of fiscal 2017. The product has been already used successfully in more than 3,000 surgeries. The company also declared a dividend of $0.09 per share, payable on July 29, 2016. Thus, considering the guidance, gross margin growth, and growth prospects, we can expect the share price to increase in the coming days.
The chart reveals a major support zone between 28 and 30 where price consolidation went on for the past three months. The next major resistance for the stock is at 38. The RSI indicator has crossed above the half-way mark and is rising. The share price has also made a bullish crossover above the 50-day moving average. Thus, the probability of an uptrend in the price is quite higher.
So, a binary trader should put his money on a one-touch call option contract expiring in the third week of July. Having a strike price of $ 38 or lower would boost the chance of success in the trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
