HANS: Hansen Looking Like a Value Trap for Now
Hansen Natural (HANS), which makes Monster energy drink, reported lower-than-expected quarterly results as cost increases drove down profitability, sending its shares down 13 percent after hours.
The company posted a first-quarter net income of $28.8 million, or 29 cents a share, compared with $20.2 million, or 21 cents a share, a year earlier. Analysts expected the company to earn 35 cents a share. Hansen lost sales as customers made early purchases in the fourth quarter to beat price increases.
It also demonstrates the short attention span suffered by most investors, as this was all discussed on the conference call three months ago. At the time, I said “Hansen Natural is giving back the last month’s gains today after reporting higher than expected sales and lower than expected margins. Both were explained by customers stocking up ahead of a price increase.”
Early this year I felt that growth was available on the cheap at Hansen. According to the Stock Market Beat models, the current situation is as follows:
- Earnings momentum: Neutral
- Earnings quality: Negative
- Price momentum: Neutral
- Free cash flow: Neutral
- Return potential: Positive
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In early April I wrote $35 put options, which were exercised against me. After accounting for the put options, my effective purchase price was $34.50. Since the technical outlook was mixed, I immediately wrote call options against the shares I now owned, further reducing my effective cost to $32.85.
If the after-hours decline carries through to today’s close, I will be down a couple of bucks on the deal but ahead of where I would otherwise be. Assuming the technicals do not improve between now and next week’s option expiration I will probably write additional call options. Right now, the stock is looking like a value trap and I want to milk the holdings for whatever I can.
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Disclosure: At time of publication, William Trent has a covered call position in shares of Hansen Natural (HANS).
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