Following the report of fiscal 2016 third-quarter earnings that topped analysts’ estimates, the share price of the Toro company (NYSE: TTC), a manufacturer of lawn care products, hit a new yearly high of $98.94 last week. The revenue, however, missed Wall Street’s consensus estimate by about $22 million. Apart from that, there are several other reasons which make us believe that the share price would remain bearish in the final quarter of fiscal 2016. The shares of Toro closed Monday’s trading session at $98.26, up $0.82 or 0.84%.
The Bloomington, Minnesota-based company recorded third-quarter revenue of $601 million, down from $609.62 million in the third quarter of fiscal 2015. The Q3 revenue missed the Thomson Reuters estimate of $623.1 million.
The Professional segment posted a $6 million y-o-y increase in net sales to $427.78 million. The Residential segment recorded net sales of $167.82 million, down from $175.98 million in the prior year’s similar period.
The 100-year-old company reported third-quarter net earnings of $55.82 million or $1 per share, compared to $53.32 million or $0.94 per share in the corresponding quarter last year. The third-quarter earnings surpassed the Wall Street estimates of $0.99 per share. Gross margin improved 50 basis points y-o-y to 36% in the third quarter primarily due to enhanced productivity.
For fiscal 2016, the company raised its lower end of the earnings guidance to a range of $3.95 to $4 per share, from the previous outlook of between $3.90 and $4 per share. Toro now anticipates full-year 2016 revenue growth to range from flat to 1%.
The company also announced a two-for-one stock split, which would become effective on September 16, 2016. Usually, the price of a stock reaches its peak before the split becomes effective. Thus, we believe that the 12-month high recorded last week may not be breached in the current quarter.
Considering the decline in the top-line growth and the stock split, we anticipate the share price to remain range-bound with a bearish bias.
Technically, the stock has started declining after facing resistance at 98.90. On the downside, the next major support (S1) exists at 88. With a reading of about 84, the stochastic indicator is trending downwards. Thus, it is imperative that the stock would soon decline to test the S1 level.
A binary trader can trade the downtrend by purchasing a one-touch put option contract which remains valid for at least one month from the date of purchase. The strike price for the put option should be preferably above $90.
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.
