Market Overview
Before we dive into this week’s idea, I do want to note that we have eight positions expiring this Friday. As always, I will update where we stand with these positions late Thursday afternoon or early Friday morning.
Moving on …
Sparked by an inflation data point that showed some signs of cooling, the market surged higher last week. The S&P 500 gained 6%, the Dow rose 4% and the Nasdaq gained a whopping 8.8%.
This week we are adding yet another earnings season winner. The details are below.
The Stock – WillScot Mobile (WSC)
Why the Strength
WillScot Mobile is a leader in mobile offices, portable storage containers, modular classrooms and various specialty temporary space solutions. Its customers span a wide range of industries, from commercial and industrial to government and other end markets, with over 390,000 total units (including 162,000 modular space units and 213,000 portable storage units).
The stock has been resilient for a while, and the recent strength is due to WillScot’s stellar Q3 performance, which featured consensus-beating Q3 revenue of $604 million that improved 31%, plus per-share earnings of 39 cents that beat estimates by a couple of cents.
The results were led by a “strong commercial performance” as volumes, pricing and value-added products (VAPS–add-ons like coffee makers, office chairs and the like needed in big projects, often carrying higher margins, too) were all up from a year ago, including a 24% monthly rate increase in VAPS and a 28% jump in storage units on rent in North America. And while the firm reported softening in U.S. and Canadian residential construction, WillScot said infrastructure spending relating to federal investment will be a “tailwind” going forward.
The company is also actively servicing major reshoring and onshoring of industrial manufacturing mega projects in the U.S., which are of long duration and require complex modular and storage solutions (including offshore wind turbine projects along the Atlantic Coast). WillScot also touted the strongest leasing run rate in its history, with rapidly accelerating free cash flow that’s enabling the execution of a tuck-in acquisition strategy (the firm closed four acquisitions of regional storage and modular companies in Q3 and 13 in the last year). Management raised full-year revenue midpoint guidance to $2.25 billion (up 20% if realized), while Wall Street sees steady growth for years to come.
Technical Analysis
As mentioned above, WSC has been resilient for much of this year, though the market’s latest leg down finally got to shares, driving them below the 50-day line a couple of times this fall. But the action has been excellent since the second shakeout, with WSC motoring to new highs before and after its quarterly report. Stop — 40
The Covered Call Trade
Buy WillScot Mobile (WSC) Stock at 47, Sell to Open December 45 Strike Calls (exp.12/16) for $3, or a Net Price of 44 or less
Static Return: $100 per covered call (2.27%)
Breakeven: 44
Covered Call Return (if assigned): $100 per covered call (2.27%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 44 or less. (In this case 47 minus 3= 44. Or another example is you could pay 46.75 for the stock and sell the call for 2.75, which also equals 44)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.
The next Cabot Profit Booster issue will be published on November 22, 2022.
