Schaeffer's Trading Floor Blog

Earnings on Deck: Baidu Inc (ADR), Chesapeake Energy Corporation, and Target Corporation

Previewing BIDU, CHK, and TGT ahead of Wednesday's earnings reports

by 2/25/2014 12:29 PM
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Headed to the earnings confessional on Wednesday are Chinese Internet issue Baidu Inc (ADR) (NASDAQ:BIDU), commodity concern Chesapeake Energy Corporation (NYSE:CHK), and retailer Target Corporation (NYSE:TGT). Here's a quick look at these names as earnings approach.

  • Baidu Inc (ADR) (NASDAQ:BIDU) will unveil its fourth-quarter figures after the closing bell tomorrow. The company has topped the Street's per-share profit projections in four of the last five quarters, averaging a one-week gain of 3.5% after reporting. Ahead of the event, near-term option traders haven't been more call-heavy in over a year, as the stock's Schaeffer's put/call open interest ratio (SOIR) sits at an annual low of 0.62. Analysts are also bullish toward BIDU, which sports 11 "strong buy" endorsements, compared to three lukewarm "holds" and not a single "sell" or worse rating. At last check, BIDU has surrendered 1% to explore the $170.75 vicinity.

  • After hinting that it could sell its oilfield services division, Chesapeake Energy Corporation (NYSE:CHK) notched its highest closing price of 2014 yesterday, but has since given back 0.7% to trade at $27.11. The firm will release its fourth-quarter earnings before the opening bell tomorrow, and previous trips to the earnings confessional haven't gone very well for CHK. Specifically, while the company has matched or exceeded analysts' bottom-line estimates in five of the last seven quarters, the stock averages a loss of 3.6% in the week after reporting. In fact, the equity surrendered 9.2% in the five sessions following its last earnings report. Nevertheless, CHK calls are being purchased at a faster-than-usual rate, as the security's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 4.76, in the 88th annual percentile. On the other hand, short interest represents nearly six sessions' worth of pent-up buying demand, at CHK's average pace of trading, suggesting some of those calls could've been purchased as hedges.

  • Finally, Target Corporation (NYSE:TGT) will also report fourth-quarter earnings bright and early tomorrow. Historically, the company has fallen short of Wall Street's per-share estimates in three of the last four quarters, and spent the week in the red after its last three reports. Option traders are either gambling on a turnaround for TGT, or are picking up calls to protect their short positions. The stock's 50-day ISE/CBOE/PHLX call/put volume ratio of 1.51 sits just 4 percentage points from a 52-week peak, pointing to a healthier-than-usual appetite for TGT calls over puts during the past 10 weeks. However, short interest grew by 26.8% during the most recent reporting period, and now accounts for 26.3 million TGT shares. On the charts, TGT is fractionally higher at $56.18. Off the charts, the U.S. House Oversight Committee is demanding documentation showing when Target officials learned of the massive data breach that put millions of customers at risk late last year.

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