Schaeffer's Trading Floor Blog

Earnings on Deck: Ford Motor Company, Colgate-Palmolive Company, and Tyco International Ltd.

Previewing F, CL, and TYC ahead of their upcoming earnings reports

by 4/24/2014 2:19 PM
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Wall Street is knee-deep in big-time earnings reports, though a few notable names are still waiting on deck. Among them are automaker Ford Motor Company (NYSE:F), consumer products concern Colgate-Palmolive Company (NYSE:CL), and security services provider Tyco International Ltd. (NYSE:TYC). Here's a quick look at these names as earnings approach.

  • Ford Motor Company (NYSE:F) will release its first-quarter earnings before the open tomorrow. While the Detroit darling has bested the Street's per-share profit predictions in each of the past eight quarters, the shares average a loss of 0.9% one week after reporting. In fact, F plummeted 7.4% in the five sessions after its last earnings release in late January. Nevertheless, pre-earnings call buying has hit fever pitch on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), where F's 10-day call/put volume ratio sits at a 52-week high of 8.16. In other words, option buyers have picked up Ford calls over puts at an annual-high clip during the past couple of weeks. Plus, half the covering analysts consider F worthy of a "buy" or better rating, with the other half doling out lukewarm "holds." Should Ford Motor Company suffer yet another post-earnings drop, a mass exodus of option bulls and/or a round of downgrades could exacerbate selling pressure on the shares. At last check, F is 0.8% higher at $16.36.

  • Colgate-Palmolive Company (NYSE:CL) will also unveil its first-quarter figures ahead of the bell tomorrow. The company has matched or exceeded analysts' bottom-line estimates in seven of the past eight quarters, resulting in an average one-week post-earnings gain of 0.9% for CL. Options traders have been upping the bullish ante, as the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.81 stands higher than 71% of comparable readings from the past year. Likewise, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.53 sits just 1 percentage point from an annual nadir, implying that short-term speculators have rarely been more call-biased during the past year. In afternoon action, CL is up 0.4% at $66.13.

  • Finally, Tyco International Ltd. (NYSE:TYC) will report fiscal second-quarter earnings before the open tomorrow. The company has met or surpassed the Street's per-share profit projections in seven of the past eight quarters, averaging a gain of 1.3% in the subsequent week. Speculators on the ISE, CBOE, and PHLX have bought to open nearly 15 TYC calls for every put during the past 10 sessions, and the resulting 10-day call/put volume ratio of 14.61 ranks in the 71st percentile of its annual range. As a result, the security's SOIR stands at 0.20, indicating that short-term calls outnumber puts by a 5-to-1 margin. This ratio sits higher than just 2% of all other readings from the past year, suggesting short-term options traders are more call-heavy than usual ahead of earnings. At last check, TYC has surrendered 0.5% to trade at $42.21.

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Midday Market Stats: Dow Jones Industrial Average Heads Higher as Investors Digest News on All Fronts

Thermo Fisher Scientific Inc. attracts call players after earnings, while Zimmer Holdings, Inc. spikes to a new high on M&A news

by 4/24/2014 11:57 AM
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After spending much of the morning treading water south of breakeven, the Dow Jones Industrial Average (INDEXDJX:.DJI) is now moderately higher at midday, up 19.8 points, or 0.1%, at 16,521.50. In addition to a number of high-profile earnings reports, investors are also weighing an upbeat durable-goods reading against anxiety over the escalating tension between Russia and Ukraine and a larger-than-forecast rise in weekly jobless claims.

Here are a few noteworthy stats at midday:

  1. The equity put/call volume ratio across all 12 options exchanges stands near 0.70. Roughly 4.55 million calls have changed hands so far today, versus 3.18 million puts.

  2. Thermo Fisher Scientific Inc. (NYSE:TMO) is seeing elevated option activity today, with volume running at more than four times the typical intraday pace. What's more, nearly 93% of the trades have been placed on the call side. TMO shares are down 3.2% today at $115.63 despite the company reporting first-quarter earnings that topped analysts' estimates and lifting its guidance for 2014.

  3. The advance/decline ratio on the New York Stock Exchange (NYSE) stands at 1.28. Advancing stocks are currently outpacing declining issues by a margin of more than 6-to-5.

  4. One of the top movers on the NYSE today is Zimmer Holdings, Inc. (NYSE:ZMH). The medical-equipment concern is currently up 12.8% at $103.19, and earlier today pegged a new all-time high of $108.33. The company has announced plans to acquire orthopedic products company Biomet Inc. for roughly $13.4 billion in cash and stock.

  5. The CBOE Volatility Index (VIX) has inched higher today as stocks fluctuate around the breakeven mark. At last check, the market's "fear gauge" was up 0.1 point, or 0.8%, at 13.36.

  6. The put/call volume ratio on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) stands at 0.32, with calls outpacing puts by a hefty margin. The ETN is up 0.3% today at 41.25.

View a real-time chart of the Dow Jones Industrial Average (INDEXDJX:.DJI).

Unusual Option Volume at Midday


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Melco Crown Entertainment Ltd (ADR) (MPEL) Struggles Don't Sway Bulls

MPEL could be poised for technical headwinds, should bulls start to jump ship

by 4/24/2014 11:52 AM
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Over the course of the past five sessions, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) option players at the International Securities Exchange (ISE) have shown a distinct preference for calls over puts. Specifically, 4,884 calls have been bought to open, compared to just 30 puts, resulting in a bullishly skewed call/put volume ratio of 162.80.

Widening the scope to include data from the Chicago Board Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX) -- and expanding the time frame to two weeks -- yields a similarly optimistic stance. In fact, the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 6.59 (up from its month-ago reading of 0.46) ranks in the 80th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 20% of the time within the past year.

This glass-half-full mindset has spilled outside of the options arena, as well. For starters, short interest plunged 22% in the latest reporting period, and now accounts for a low 1.2% of the stock's available float. Not only was MPEL unable to capitalize on this burst of buying power (the equity is down 11% from March 17), but -- at current levels -- there is little in the way of available sideline cash to help fuel any future rally attempts.

Additionally, 11 out of 12 analysts maintain a "strong buy" recommendation for the equity, with the sole "dissenter" awarding the stock with a "buy" rating. Plus, the consensus 12-month price target of $49.60 stands at a stiff 34% premium to MPEL's present price of $37.14, as well as in territory yet to be charted by the stock.

Looking at the charts reveals MPEL's price action doesn't warrant such bullish speculation. As touched upon, the equity has struggled over the past month or so, in spite of all of the short-covering activity. However, this sell-off started weeks before, after MPEL topped out at a record peak of $45.70 on March 5, and since hitting that notable mark, the stock has shed 19%. More recently, the equity's two rally attempts in April were quickly contained by MPEL's descending 32-day moving average -- a trendline that previously served as support in February.

From a contrarian perspective, such bullish sentiment surrounding an underperforming stock could have bearish implications going forward. In other words, an unwinding of the optimism toward MPEL both in and out of the options arena could translate into headwinds for the stock down the road.

What's more, the casino operator is scheduled to report earnings on Thursday, May 8. Despite exceeding consensus bottom-line estimates in six of the past eight quarters, the stock has gone on to shed an average of 0.5% and 1.4% in the subsequent day and week, respectively. For its first quarter, the expectation is for Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) to bank a 41-cent per-share profit -- a nearly 71% improvement over year-ago results.


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Analyst Downgrades: Angie's List Inc, ARM Holdings plc (ADR), and Walter Energy, Inc.

Analysts downwardly revised their ratings on ANGI, ARMH, and WLT

by 4/24/2014 9:47 AM
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Analysts are weighing in today on business referral site Angie's List Inc (NASDAQ:ANGI), chip maker ARM Holdings plc (ADR) (NASDAQ:ARMH), and coal producer Walter Energy, Inc. (NYSE:WLT). Here's a quick roundup of today's bearish brokerage notes.

  • Although ANGI reported a smaller quarterly earnings loss last night, the stock received a price-target cut to $18 from $21 at RBC this morning. On the charts, Angie's List Inc popped 9.2% higher to $14 out of the gate, but remains 7.7% below its year-to-date flat line. Nevertheless, the equity boasts eight "buy" or better endorsements, compared to seven "holds" and zero "sell" suggestions. Plus, the average 12-month price target among covering analysts comes in at $19.06, territory ANGI hasn't explored since early February. Should the stock resume its long-term downtrend, a round of downgrades and/or price-target cuts may be on the way, which could put more pressure on the shares.

  • ARMH -- which posted poorly received first-quarter earnings results yesterday morning -- saw its price target decreased to 900P from 918P, and to 950P from 970P, at Exane Bnp Paribas and Natixis, respectively, this morning. (Meanwhile, HSBC upped its price target by 40P.) Since the start of 2014, ARM Holdings plc (ADR) has lost about 11% to trade at $48.64, yet the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.62 ranks lower than 98% of comparable readings from the past 12 months, indicating ARMH call open interest (relative to put open interest) is almost at an annual-high level among options expiring within the next three months.

  • WLT -- which is down a whopping 54.6% year-to-date to trade at $7.56 -- received a price-target cut to $10 from $12 at RBC earlier today. Amid the stock's decline, short interest spiked 23.4% during the last two reporting periods. Now, 32.8 million shares are sold short, which is equivalent to more than half of Walter Energy, Inc.'s available float.

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Analyst Upgrades: Apple Inc. (AAPL), Facebook Inc (FB), and Zynga Inc

Analysts upwardly revised their ratings on AAPL, FB, and ZNGA

by 4/24/2014 9:29 AM
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Analysts are weighing in today on technology powerhouse Apple Inc. (NASDAQ:AAPL), along with social stocks Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA). Here's a quick roundup of today's bullish brokerage notes.

  • AAPL is poised to erase its year-to-date loss in today's session, currently up 8.3% in pre-market action to trade at $568.50 following the company's stronger-than-expected earnings report last night. The upbeat news led more than a dozen brokerage firms to upwardly adjust their positions on the stock, including Goldman Sachs and Canaccord Genuity, which each increased their price target by $10 to $620 and $610, respectively. Heading into the quarterly event, short-term Apple Inc. option traders had been trading puts, relative to calls, at a near-annual-high rate, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks higher than 99% of comparable readings taken during the past 12 months.

  • FB -- which is up 12.3% year-to-date to trade at $61.36, as of yesterday's close -- is also poised for a daily win, after revealing upbeat first-quarter earnings results and receiving multiple bullish brokerage notes. Among the optimists on Wall Street are Morgan Stanley and Deutsche Bank, which lifted their price targets to $73 from $72, and to $85 from $76, respectively. Facebook Inc is no stranger to bullish attention from analysts, already maintaining 30 "buy" or better endorsements versus three "holds" and not a single "sell" suggestion. Furthermore, the average 12-month price target of $74.61 represents expected upside into territory yet to be explored by FB.

  • Finally, ZNGA -- which last night announced a 36% decline in revenue for the first quarter and reported a management shake-up -- nevertheless scored a significant amount of positive brokerage notes in pre-market trading, including $0.50 price-target hikes to $4.50 and $5 at BMO and Piper Jaffray, respectively. On the charts, Zynga Inc is down about 6% on a one-month basis to trade at $4.42 (though, the shares are poised for an earnings-induced pop today), and so investors have upped the bearish ante on the stock. Short interest climbed 25.3% during the last two reporting periods, and now accounts for 8.4% of ZNGA's available float.

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