Schaeffer's Trading Floor Blog

Analyst Downgrades: Baidu, McDonald's, and J.C. Penney

Analysts downwardly revised their ratings on BIDU, MCD, and JCP

by 1/9/2013 9:19 AM
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Analysts are weighing in today on Chinese search engine Baidu, Inc. (ADR) (NASDAQ:BIDU - 101.09), fast-food behemoth McDonald's Corporation (NYSE:MCD - 90.94), and department store chain J.C. Penney Company, Inc. (NYSE:JCP - 18.99). Here's a quick roundup of today's bearish brokerage notes.

  • BIDU -- which has shed more than 20% during the past year -- received a price-target reduction to $115 from $125 at Jefferies this morning. The security has also trailed the broader S&P 500 Index (SPX) by more than 8 percentage points over the last three months, yet most of the covering analysts still hold BIDU in high regard. The stock currently sports 10 "strong buys" and one "buy" endorsement, compared to four "holds," and zero "sell" suggestions. From a contrarian perspective, this leaves plenty of room for future downgrades, which could pressure the shares even lower.

  • With fourth-quarter earnings scheduled later this month, MCD was downgraded to "market perform" from "outperform" at Raymond James today. The equity has surrendered almost 9% over the last 52 weeks, but that hasn't deterred call buyers. MCD's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 3.49, indicating traders have bought to open more than three calls for every put during the past couple of weeks. This ratio is just 9 percentage points shy of a yearly peak, reflecting a much stronger-than-usual preference for bullish options over bearish.

  • Down almost 45% on a year-over-year basis, JCP was cut to "neutral" from "outperform" at Macquarie ahead of the opening bell. Despite this technical weakness, the equity's short-term options activity remains bullishly biased. Schaeffer's put/call open interest ratio (SOIR) for JCP sits at 0.78, with calls outstripping puts among the front three-months' series of options. This ratio is just 8 percentage points above an annual nadir, meaning near-term speculators have rarely been more optimistically aligned toward the stock during the past year. This accumulation of call volume could end up translating into options-related resistance down the road.

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