A "Tie-in" to MW

Written by GSCR Staff   
Wednesday, 26 June 2013 10:02

A few months back we broke from ‘serious’ stock writing to put in our two cents on the Herbalife (NYSE – HLF) drama.  Let’s face it, human conflict sells on TV and Wall Street as people love clashes and quarrels.  Charts and numbers are no contests for spats and board room spectacle.

As you may or may not know, the board at The Men’s Wearhouse (NYSE – MW - $37.31) fired founder and Chairman George Zimmer last week after irreconcilable differences between him and his handpicked successor, CEO Doug Ewert.  You may recognize Zimmer from the company’s TV ad tagline, “…You’re gonna like the way you look, I guarantee it.”  There are several reasons that have been suggested to have been causes for the rift.  Yesterday, it came to light that Mr. Zimmer wanted to take the company private and sell to a private investment group and was blocked by the board.  Any way you cut it this was an ugly divorce but created some great entertainment over the last few days.

We believe this drama could enable the MW stock jump over the next few months.  However, instead of buying the stock it may be time to buy some calls.  The August 2013 calls for $40 and $41 strike are priced at $70 and $50 respectively.  These may turn out to be cheap ways to get in on a big spike.

Here are the three reasons we think there is short term pop in the works:

First, one of the rumors that were swirling initially was that Zimmer and Ewert were clashing over the sale of the company’s low-end chain, K&G.  The board and Ewert wanted to sell, Zimmer did not. With Zimmer out of the picture, this sale, and adding some quick cash is now a possibility.

The second item to consider here is that where there is smoke there is fire.  Once the company brought in a 3rd party to consult on the sale, it opened the floodgates to the possibility of being bought in the future, privately or publicly.  And we all know that being the acquired, is almost always good news for the stock.

Finally, upsetting a self-made billionaire, like Zimmer may come back to haunt the board at MW.  He may decide to buy the company back just for spite.  See above about the acquired.

Just as a quick check, technical analysis is very bullish to bullish for the short-term, intermediate, and long-term.  This might be the opportune time to bet on the drama at MW with some options.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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