Schaeffer's Trading Floor Blog

Earnings on Deck: BlackBerry Ltd, Lululemon Athletica inc., and Red Hat Inc

Previewing BBRY, LULU, and RHT ahead of their upcoming earnings reports

by 3/26/2014 11:32 AM
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Headed to the earnings confessional this week are smartphone maker BlackBerry Ltd (NASDAQ:BBRY), yoga apparel concern Lululemon Athletica inc. (NASDAQ:LULU), and software issue Red Hat Inc (NYSE:RHT). Here's a quick look at these names as earnings approach.

  • BlackBerry Ltd (NASDAQ:BBRY) will unveil its fourth-quarter figures before the opening bell on Friday. The company has a mixed history in the earnings confessional -- in the last four quarters, BBRY has issued two negative and two positive earnings surprises. Nevertheless, the stock gained 23.7% over the three-session period after its last report. BBRY -- which just scored a coveted U.S. government security clearance, as well as a price-target hike from Citigroup -- has added more than 25% in 2014, but was last seen flirting with breakeven at $9.35. Plus, the stock has outperformed the S&P 500 Index (SPX) by 26.6 percentage points during the past three months. Should BBRY extend its uptrend, or should the company once again wow the Street with earnings, more upbeat analyst attention could be on the way. Currently, 27 of the 28 analysts following the shares deem them a "hold" or "sell."

  • Lululemon Athletica inc. (NASDAQ:LULU) will report fourth-quarter earnings bright and early tomorrow morning. While the firm has exceeded analysts' bottom-line estimates in each of the past seven quarters, the stock averages a loss of 2.8% in the week after reporting. Technically speaking, LULU has underperformed the SPX by 20 percentage points during the past three months, and has surrendered 17% in 2014, despite today's 2.1% gain to $48.99. Against this backdrop, analysts and short-term options traders have grown increasingly bearish toward the shares. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.32 sits just 6 percentage points from an annual high, implying that short-term speculators are more put-heavy than usual right now. Likewise, short interest represents nearly seven sessions' worth of pent-up buying demand, at LULU's average pace of trading, underscoring the skepticism on Wall Street.

  • Finally, Red Hat Inc (NYSE:RHT) is slated to release its fourth-quarter earnings after the close tomorrow. The company has matched or exceeded the Street's per-share earnings projections in seven of the last eight quarters, averaging a one-week post-earnings gain of nearly 1.1%. The speculative crowd is upping the bullish ante ahead of the report, buying to open more than 22 RHT calls for every put during the past 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting 50-day call/put volume ratio of 22.26 stands higher than 96% of all comparable readings from the past year, suggesting traders are buying to open RHT calls over puts at a near-annual-high clip. Likewise, 17 out of 20 brokerage firms offer up "buy" or better endorsements, with not a "sell" in sight. At last check, RHT has shed 0.9% to linger near $56.79, but remains 1.3% higher year-to-date.

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