Labor Ready’s ( LRW ) stock price was up 8.25% on Wednesday and appears like it may go even higher. Labor Ready supplies manual labor workers for construction, manufacturing, and skilled trades. The company’s customers are primarily small to midsize businesses that use the company for resource leveling. It is extremely helpful for short-term projects where it would be difficult to hire new permanent employees. Some analysts are suggesting as American companies lean down, they will alternatively turn more and more to services like Labor Ready’s rather than hiring permanent hands.
The company’s business model is simple-it charges its customers $13.50 hour for laborers and in turn pays the laborers $7.50 an hour minus taxes. This benefits many transient laborers, unskilled laborers and laborers who are looking to get a fresh start with a new company. The company’s motto, “we put people to work,” simply and succinctly describes their business model.
Labor Ready is currently the largest supplier of day laborers and employs more than 600,000 people a year. The company did over 1.2 billion in sales last year and has tripled its sales in the last three years.
Many analysts worry with the slowdown of housing market Labor Ready’s sales will suffer. A Labor Ready estimate states about 40% of their business comes from the construction industry. It is likely investor reaction to this theory is the reason its stock price is down about 35% since April. However, the company’s stock price is up nearly 30% since its low in early September.
Yesterday Labor Ready’s President Steve Cooper and CFO Derrick Gafford provided their financial outlook for the coming 2007 fiscal year. They announced revenue would be around $1.4 billion (a 14% increase) and they would be opening approximately 40 additional branch offices. Recently, Labor Ready acquired Spartan staffing out of Tampa, Florida and CLP resources Inc. out of Reno, Nevada.
The Company’s forward P/E is a very attractive 13.7 and their current EPS is $1.32. The company estimates EPS grow to around $1.45 in fiscal year 2007.
Assuming Labor Ready’s bad news in the rear view mirror, we will use PowerOptions stock options tools to search for an attractive covered call investment strategy for this stock.
| Covered Calls LABOR READY INC (LRW) $19.29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Expiration/Strike | Opt. Bid |
%Dnsd. Prot |
%If Unch. |
%If Asgnd |
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| LRWLW | 06 DEC 17.50 | $2.20 | 2.10% | 2.10% | 2.10% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LRWBD | 07 FEB 20.00 | $1.05 | 5.40% | 5.80% | 9.50% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Although not spectacular, the covered calls positions for Labor Ready are respectable with potential returns in the 2% per month range. Labor Ready’s solid fundamentals combined with the recovery trend of its stock make it an attractive covered calls stock options investment strategy.
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[tags]LRW, Labor Ready Inc., covered call investment strategy, investment strategy, iron condor, option income, poweroptions, selling naked puts, stock option trading, stock options[/tags]