Schaeffer's Trading Floor Blog

Stocks On the Move: LinkedIn Corp, Spansion Inc., and Imperva Inc

LNKD, CODE, and IMPV are moving sharply in Friday's trading

by 10/31/2014 12:01 PM
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Stocks are notably higher today, as traders cheer upbeat central bank news from overseas. Among specific equities moving sharply in today's trading are professional networking platform LinkedIn Corp (NYSE:LNKD), flash memory concern Spansion Inc. (NYSE:CODE), and data security specialist Imperva Inc (NYSE:IMPV). Here's a quick look at how LNKD, CODE, and IMPV are performing on the charts so far.

  • Unlike sector peers Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB), LNKD is soaring in the wake of its quarterly earnings report -- up 11.7% to linger near $226.72, and back into the black on a year-to-date basis. Adding to the bullish buzz is a round of price-target hikes, including one from Jefferies, which boosted its outlook by $15 to $315 -- uncharted territory for the equity -- and underscored its "buy" rating. (UBS, meanwhile, shaved its price target by $5 to $255, but maintained its "buy" recommendation.) Short sellers are more than likely feeling the sting of today's post-earnings pop, considering short interest jumped 26.5% in the latest reporting period, and now accounts for a healthy 7.6% of LinkedIn Corp's available float.

  • After being halted on the Big Board earlier, CODE was last seen 20% higher at $19.82, despite the company's disappointing third-quarter earnings results and forecast from CEO John Kispert. What's more, today's upside is occurring even as the stock was hit with price-target cuts from Jefferies (to $24) and Topeka (to $22), although both brokerage firms maintained their "buy" ratings. In the two weeks leading up to last night's announcement, option traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) bought to open 15.85 calls for every put. With 13.2% of Spansion Inc.'s float sold short, though, a portion of this activity may have been at the hands of shorts hedging against any post-earnings upside.

  • A stronger-than-expected third-quarter earnings report and subsequent round of price-target hikes has sent IMPV up 22.5% this afternoon to trade at $39.85. Among specific analyst notes, Piper Jaffray offered up the most optimistic view, boosting its price-target to $44 from $29, and raising its outlook to "overweight" from "neutral." Should the stock continue its post-earnings momentum, another round of price-target hikes and/or a short-covering rally could help propel it even higher. In fact, the consensus 12-month price target of $35 stands at a discount to current trading levels, and it would take more than seven sessions to cover all of Imperva Inc's shorted shares, at average daily trading levels.

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Analyst Downgrades: EXACT Sciences Corporation, Groupon Inc, and Starbucks Corporation

Analysts downwardly revised their ratings on EXAS, GRPN, and SBUX

by 10/31/2014 9:29 AM
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Analysts are weighing in today on molecular diagnostics firm EXACT Sciences Corporation (NASDAQ:EXAS), coupon king Groupon Inc (NASDAQ:GRPN), and java giant Starbucks Corporation (NASDAQ:SBUX). Here's a quick roundup of today's bearish brokerage notes on EXAS, GRPN, and SBUX.

  • Canaccord Genuity lowered its price target on EXAS by $2 to $30, but maintained its "buy" rating. This, despite the shares more than doubling in value this year to trade at $24.81. Skepticism toward EXACT Sciences Corporation can be found among short sellers, as well, as 32.6% of the stock's float is sold short -- which would take nearly eight sessions to buy back, at the equity's average daily trading levels. That said, if EXAS can maintain its positive technical trajectory, a capitulation among the shorts could further boost the shares.

  • GRPN's turn in the earnings confessional was decidedly mixed, as an earnings beat was counterbalanced by lower-than-expected current-quarter guidance. The analyst reaction, likewise, is split. Specifically, B. Riley and Evercore Partners lowered their respective price targets on Groupon Inc -- and maintained their "buy" and "sell" ratings -- while Credit Suisse and RBC both raised their price targets, while sustaining their "neutral" and "sector perform" assessments. Ahead of the bell, the stock is nearly 9% higher, but is sitting on a year-to-date loss of roughly 49% at $5.99. In the options pits, short-term traders have shown a stronger-than-usual affinity for puts over calls recently. GRPN's Schaeffer's put/call open interest ratio (SOIR) of 0.85 ranks in the put-skewed 97th percentile of its annual range.

  • Finally, slower-than-expected fiscal fourth-quarter sales -- as well as a weaker-than-expected current-quarter outlook -- are pressuring SBUX south this morning, despite news of a future coffee delivery service. At last check, the stock -- which settled at $77.32 last night, or just below year-to-date breakeven -- was 2.8% lower ahead of the open. Also weighing on Starbucks Corporation were price-target cuts at Baird (to $88 from $92) and J.P. Morgan Securities (to $82 from $85) -- though the pair of firms underscored their respective "outperform" and "overweight" opinions. In the options pits, meanwhile, traders have been scooping up bearish bets over bullish at an extreme pace in recent months. Specifically, SBUX's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.17 sits in the top percentile of its annual range.

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Buzz Stocks: Citigroup Inc, Wal-Mart Stores, Inc., and Aegerion Pharmaceuticals, Inc.

Today's stocks to watch include C, WMT, and AEGR

by 10/31/2014 9:20 AM
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The market is ready to rally this morning, after the Bank of Japan (BoJ) announced a fresh stimulus plan overnight. Among specific equities to watch today are financial firm Citigroup Inc (NYSE:C), retailer Wal-Mart Stores, Inc. (NYSE:WMT), and drugmaker Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR).

  • C downwardly revised its third-quarter profit to $2.8 billion from $3.4 billion -- resulting in a per-share decrease of 19 cents to 88 cents -- due to a "$600 million increase in legal accruals." Additionally, Citigroup Inc said it is being investigated by five domestic and international agencies over its forex operations. On the charts, the equity has rallied more than 10% since hitting an intraday low of $48.11 -- two sessions after it initially unveiled its third-quarter results -- toppling the round-number $50 mark along the way. This uptrend hasn't convinced option traders, though, as evidenced by C's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.70, which ranks just 7 percentage points from an annual bearish peak. On Thursday, C closed at $53.15.

  • It's Halloween, but retailers like WMT and Amazon.com, Inc. (NASDAQ:AMZN) have their sights set on the holiday shopping season. This weekend, in fact, Wal-Mart Stores, Inc. is unveiling its first round of massive price cuts, attempting to lure in an early round of bargain hunters ahead of its rivals. Technically speaking, WMT is sitting on a 2.8% year-to-date deficit, but is positioned to pare a portion of this in today's session, with the stock up about 0.7% ahead of the bell. Option traders are keeping the faith, per the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 5.53, which ranks higher than all other readings taken in the past year. Analysts, meanwhile, are more skeptical -- the consensus 12-month price target of $78.84 for WMT stands just 3.1% above the equity's current perch at $76.45.

  • AEGR is poised for a 32% plunge out of the gate -- and to hit a new annual low -- after the company reported worse-than-expected third-quarter earnings, and downwardly revised its full-year revenue forecast. The news was met with a round of bearish brokerage notes, including a downgrade to "hold" from "buy" at Needham, and a price-target cut to $25 from $36 at Cowen and Company. Today's projected price move only echoes the withstanding technical troubles of a stock that's shed nearly 52% in 2014 to churn near $34.21. Should the security's struggles continue, analysts could continue to reduce their ratings on Aegerion Pharmaceuticals, Inc. At present, 88% of those covering the shares maintain a "strong buy" suggestion, with not a single "sell" to be found. Additionally, the average 12-month price target of $57.33 sits at a 68% premium to present trading levels, and in territory not charted since early March.

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Analyst Upgrades: Expedia Inc, GoPro Inc, and Yahoo! Inc.

Analysts upwardly revised their ratings on EXPE, GPRO, and YHOO

by 10/31/2014 9:04 AM
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Analysts are weighing in today on travel website Expedia Inc (NASDAQ:EXPE), mobile camera concern GoPro Inc (NASDAQ:GPRO), and Internet media mogul Yahoo! Inc. (NASDAQ:YHOO). Here's a quick roundup of today's bullish brokerage notes on EXPE, GPRO, and YHOO.

  • Following a better-than-expected third-quarter earnings report, EXPE was met with a round of price-target hikes from no fewer than nine brokerage firms. Most ambitious thus far was Benchmark, which lifted its target to $97 from $94 and echoed a "buy" rating. As a result, the shares -- which are already up nearly 16% in 2014 to trade at $80.73 -- are 4% higher ahead of the bell. Should Expedia Inc sustain this upward momentum, it could result in a short-covering rally, as 10.6% of the stock's float is currently sold short.

  • GPRO has surged more than 15% ahead of the bell, after posting stronger-than-anticipated third-quarter results and current-quarter guidance. The analyst community also cheered these results, as J.P. Morgan Securities, Baird, and Wedbush raised their respective price targets on the equity, and the latter reiterated an "outperform" recommendation. On the charts, GoPro Inc has been volatile since its public debut in late June -- jumping as high as $98.47 earlier this month, but sagging in recent weeks to its current perch at $68.25. That said, if the shares can resume their previous uptrend, a capitulation among the remaining skeptics -- and/or additional bullish initiations -- on Wall Street could spell tailwinds. Specifically, eight out of 11 covering analysts rate GPRO a "hold" or "strong sell," compared to just three total "buy" recommendations.

  • Finally, J.P. Morgan Securities resumed coverage of YHOO with an "overweight" opinion and $55 price target. Technically speaking, the shares have posted a strong year-over-year performance, rallying 38.5% to settle at $45.63. Nevertheless, in recent weeks, options traders have placed downside bets over bullish at a faster-than-usual pace. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.42 ranks in the 89th percentile of its annual range. A capitulation among these option bears could buoy Yahoo! Inc. going forward.

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Oil Bears: Smart Money, or Contrarian Signal?

What heavy put volume on the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) means for contrarians

by 10/31/2014 8:53 AM
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Even though the market has recovered most of its gains, oil really has not. The rolling crude near-ish future (now December) peaked at $107.68 in late June, and then dropped to just under $80 by mid-October. It bottomed at $79.44 on Monday, and is still hovering near $80.

And, all that punk action has of course transferred into stocks in the industry, and lately has sparked a flood of put trading. This, via Bloomberg:

Even after valuations for an index tracking the shares slumped 40 percent, investors are loading up on bearish options. The cost of puts on the SPDR S&P Oil & Gas Exploration & Production ETF jumped to the the [sic] highest level in seven years versus calls. The exchange-traded fund tracks companies including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, which are down more than 9 percent from their highs this year.

… Companies in the index that the oil ETF (XOP) tracks trade at 26.6 times reported earnings, data compiled by Bloomberg show. Multiples fell as much as 39 percent from June to a one-year low on Oct. 14. The benchmark Standard & Poor's 500 Index has a valuation of 17.6 times.

Both volume and the number of options outstanding on the oil ETF surged this month, and nine out of the 10 most-owned contracts are bearish. Those hedging against a 10 percent decline in the fund cost 10.7 points more than calls betting on a 10 percent gain on Oct. 28, according to three-month implied-volatility data compiled by Bloomberg. That's the widest spread since September 2007.

On the surface, it sounds bullish, from a contrarian basis. It's an old saying that you want to get greedy when others are fearful, and there sure is plenty of fear around.

Implied volatility in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) did make quite the move, as well. The XOP "VIX" was as low as 21 in late August, then peaked as high as 58 in mid-October. Then again, that's pretty much in line with the percentage move in the actual CBOE Volatility Index (VIX). Unlike the actual VIX, though, XOP volatility has only dropped back to the low 40s.

One warning, though: Be careful deriving too much signal when options are telling you the same story as the stocks themselves. If we saw all this put interest while the energy patch was booming, it would tell me that no one believes in the boom, and the public at large is trying to catch a top. That rarely works in the aggregate. But, a spike in put interest in a weak group? That makes some sense.

Now, don't get me wrong: I'm not saying that action is bearish. It's not likely "sharps" are loading up on puts now. It's just that it's a weak bullish signal.

It is interesting that XOP has recovered better than crude itself. It bottomed at $52.15 in mid-October, about when crude was first hitting lows. It has since popped to the mid-$59s. So, maybe the masses already have backed up the volatility truck at the bottom? If nothing else, it's a level to lean against.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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