Shares trade 13X earnings, 1X sales, and 22.5X cash value, a fairly good value and roughly in line with Sherwin Williams (SHW), one of the largest paint producers. Valspar has a market cap of $2.9B, and last received Wall St coverage back in August when KeyBanc rated shares a Buy with a $32 target.
Valuation is fairly attractive, but the thing that caught my attention is the chart and the options action, my personal favorite indicator.
Taking a look at the chart below you can see shares cleared a major hurdle around $27, and have consolidated, but are beginning to breakout again, and just had a bullish MACD crossover on the weekly.
Today, in the options pit I noticed some unusual action, as 20X average call volume traded and it involved the July $35 calls, more than 17% out of the money, buyers paying 30 cents in contracts that began the day with a 5 cent bid. Valspar has an implied volatility reading of 26% in July, with earnings in May the next clear catalyst.
These calls that were bought today look to be betting on a takeover, and a deal would make sense for Valspar. The action is too odd to ignore, and reminds me a lot of when I saw some far OTM call buying in future dated months in AirGas (ARG), just days before it received a buyout offer.
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