Schaeffer's Trading Floor Blog

Analyst Downgrades: Glu Mobile Inc., Whole Foods Market, Inc., and Yum! Brands, Inc.

Analysts downwardly revised their ratings on GLUU, WFM, and YUM

by 7/31/2014 9:18 AM
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Analysts are weighing in today on mobile gaming issue Glu Mobile Inc. (NASDAQ:GLUU), organic grocer Whole Foods Market, Inc. (NASDAQ:WFM), and Pizza Hut parent Yum! Brands, Inc. (NYSE:YUM). Here's a quick roundup of today's bearish brokerage notes.

  • Despite topping the Street's bottom-line projections for the second quarter, and announcing the acquisition of Cie Games, GLUU is set to open roughly 10% lower this morning. Part of this pre-market sell-off may be attributable to a downgrade to "hold" from "buy" at Benchmark (although Canaccord Genuity and Stifel each raised their price targets). Taking a step back, analysts have been extremely optimistic toward Glu Mobile Inc.; in fact, eight brokerage firms have doled out a "strong buy" rating toward the stock. This bullish configuration is understandable, too, given the equity's year-to-date advance of nearly 78%.

  • WFM is also set to open lower this morning, after last night reporting lower-than-expected fiscal third-quarter sales and reducing its full-year guidance. Subsequently, the stock saw its price target slashed at Cantor, Jefferies, Suntrust Robinson, and J.P. Morgan Securities (which also reduced its rating to "neutral" from "overweight"). Elsewhere, short interest has been rising on Whole Foods Market, Inc. -- which has shed 32.4% in 2014 to trade at $39.11 -- and now makes up nearly 10% of the equity's float.

  • Finally, YUM is getting pummeled by Wall Street, after the company said the recent expired-meat scandal has resulted in a "significant, negative impact" on sales in China. Specifically, Deutsche Bank, Janney, RBC, and Stifel lowered their price targets on the stock, which has tumbled nearly 12% since the news broke, and now trades at $73 per share. YUM's consensus 12-month price target is still lodged at $87.11, meaning additional bearish brokerage notes could be on the way.

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U.S. stock futures are pointed south ahead of the bell, with concerns over a possible Argentine default rattling investors. In company news, today's stocks to watch include Finnish mobile firm Nokia Corporation (ADR) (NYSE:NOK), buyout target Family Dollar Stores, Inc. (NYSE:FDO), wireless giant Verizon Communications Inc. (NYSE:VZ), and blue-chip pharmaceutical name Johnson & Johnson (NYSE:JNJ).

  • Nokia Corporation (ADR) (NYSE:NOK) struck a deal to acquire wireless assets from Panasonic, in a move designed to expand NOK's reach in the crucial Japanese market. Financial terms of the deal were not disclosed. (Reuters)

  • Now that the company is set to be acquired, investor Carl Icahn is unwinding his stake in Family Dollar Stores, Inc. (NYSE:FDO). On Tuesday, Icahn Associates unloaded 3.8 million shares, with another 2.8 million hitting the market on Wednesday. So far, Icahn's realized profit on the FDO stake is estimated at more than $100 million. (Forbes)

  • Verizon Communications Inc. (NYSE:VZ) received a strongly worded letter from Federal Communications Commission (FCC) Chair Tom Wheeler, as the watchdog organization expressed serious concerns over VZ's "throttling" practices for top data users. In the missive, Wheeler asked Verizon how it could justify slowing data services "to a user who has paid, after all, for 'unlimited' service." (TechCrunch)

  • After suspending use of its power morcellators earlier this year, Johnson & Johnson is officially recalling the devices from the global market. The Food and Drug Administration (FDA) has raised concerns that power morcellators, used for hysterectomies and fibroid surgeries, may spread undetected cancer cells in patients. (Bloomberg)

  • On the earnings front, Exxon Mobil Corporation (NYSE:XOM), MasterCard Inc (NYSE:MA), Whole Foods Market, Inc. (NYSE:WFM), and Yelp Inc (NYSE:YELP) were among the big names to report their latest quarterly results. (CNBC; Wall Street Journal [subscription required]; Barron's; FOX Business)

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Analyst Upgrades: Baidu Inc (ADR), SodaStream International Ltd, and Western Digital Corp

Analysts upwardly revised their ratings on BIDU, SODA, and WDC

by 7/31/2014 8:42 AM
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Analysts are weighing in today on Chinese search engine Baidu Inc (ADR) (NASDAQ:BIDU), home carbonation system maker SodaStream International Ltd (NASDAQ:SODA), and digital storage solutions provider Western Digital Corp (NASDAQ:WDC). Here's a quick roundup of today's bullish brokerage notes.

  • Extending last week's post-earnings bull gap, BIDU ran to a record high of $229.60 earlier this week, and currently sits at $219.13 -- up 67% year-over-year. Accordingly, Standard Chartered raised its price target on the stock by $50 to $275, to go along with an "outperform" rating. This optimistic sentiment isn't unusual on Wall Street. In fact, 11 out of 13 analysts following Baidu Inc (ADR) have handed out "strong buy" evaluations, compared to just two "holds" and not a single "sell" opinion.

  • SODA rallied 10% yesterday to close at $32.76, thanks to a better-than-expected second-quarter earnings report. In response, Barclays raised its rating on the equity to "equal weight" from "underweight" (although Canaccord Genuity, J.P. Morgan Securities, and Roth each lowered their price targets). Generally speaking, analysts are at least slightly skeptical of SodaStream International Ltd, which has received just one "strong buy" endorsement, versus seven "holds" and two "strong sell" opinions. This makes sense, too, given the shares' 34% year-to-date deficit.

  • Finally, WDC reported a fiscal fourth-quarter earnings beat last night, and was subsequently met with a flurry of bullish brokerage notes. In fact, no fewer than eight firms upped their price targets on the shares. Additional price-target hikes could be on the way, too, as Western Digital Corp's consensus 12-month price target of $104.42 is just a chip-shot away from its current perch at $101.17.

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Pricing in a Post-Earnings Move for GoPro Inc and Tesla Motors Inc (TSLA)

What the options market is expecting from GPRO and TSLA after tonight's earnings results

by 7/31/2014 7:52 AM
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Earnings season is winding down, but not without some late fireworks to spice it up. The early high-profile names were about as snoozy as the market itself, but a couple of later names -- notably Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) -- popped pretty nicely. Twitter did particularly well versus "the board." Options priced in about a 10.5% move, while the actual pop was over twice that. And, that was after an even bigger blast in the overnight.

We still have a couple more interesting names yet to report. Specifically, tonight features results from GoPro Inc (NASDAQ:GPRO) and Tesla Motors Inc (NASDAQ:TSLA).

GoPro reports for the first time as a public company, so there's zero history to fall back on. Well, zero of its own history -- we do have countless examples of recent hot initial public offerings (IPOs) reporting for the first time. I'd guess the next one to miss "The Number" is the first one. There's literally zero chance a company like this disappoints right out of the gate.

GPRO is unique among these sorts of names in that they actually already earn money. The fact that they'll certainly beat doesn't mean the stock goes up, of course; there's "whisper" numbers, guidance for next quarter, et al.

The options aren't pricing in all that much. My system shows about a 7.5% move priced in. And, that's right on the heels of the big TWTR beat -- something that often puts a little more anticipation into the next names on the docket.

Take that 7.5% with a grain of salt, though. The calculation is based on the bid-up in implied volatility. But, it's difficult to baseline implied volatility when there's so little history. Perhaps all nearer-month options collapse tomorrow. The "VIX" of GPRO is about 75, while January options have an implied volatility in the low 60s; so, let's see what happens to both those numbers tomorrow.

As to direction, put open interest is at record levels versus call open interest. "Record" doesn't mean an awful lot when you've only traded for a month, though. The actual ratio is 1.2 puts over calls, which is unexceptional.

TSLA, of course, has some more history to go on. The options, coincidentally, also price in about a 7.5% move. That's low versus some TSLA moonshots and collapses on earnings days, including the session subsequent to its early May first-quarter results, which saw the stock gap down 11%. On the other hand, it's a maturing company, and the swings do tend to taper off over time. The stock itself is about as non-volatile as we've ever seen it. The 10-day realized volatility is about 13, as it's basically hovered between $215 and $230 since early July.

If you're looking for some downside, here's something for you. Puts are relatively unpopular. Here's the Schaeffer's put/call open interest ratio (SOIR) over the last half year:

Tesla Motor Inc SOIR Since January 2014

I generally expect a stock to react in the same direction as the current trend. However, given Tesla Motors Inc (NASDAQ:TSLA) has had no real trend lately, there's not much to go on here.

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

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U.S. stocks are mixed this afternoon, as enthusiasm over this morning's solid gross domestic product (GDP) reading has faded ahead of the Fed's policy announcement. Among the names making notable moves are at-home carbonation purveyor SodaStream International Ltd (NASDAQ:SODA), commodity stock United States Steel Corporation (NYSE:X), and stun-gun specialist TASER International, Inc. (NASDAQ:TASR). Here's a quick look at how SODA, X, and TASR are faring on the charts today.

  • SODA has spiked nearly 12% this afternoon to trade at $33.27, as Wall Street cheers a stronger-than-forecast second-quarter earnings report. It's quite likely we're seeing a short-squeeze rally play out today, as 31.2% of the equity's float is sold short -- representing 6.2 times SODA's average daily trading volume. Despite today's jump, shares of SodaStream International Ltd are still down about 33% year-to-date, and have yet to rise high enough to challenge resistance at their looming 40-day moving average.

  • X is also on the upswing after earnings, rallying almost 20% to trade at $33.18. Earlier in the session, United States Steel Corporation tagged a fresh high of $33.45 -- its best price since August 2011. Like its sector peer AK Steel Holding Corporation (NYSE:AKS), X looks due for some bullish brokerage attention. Currently, only 38% of analysts have deemed the stock worthy of a "buy" rating, and the average 12-month price target of $28.20 is well below today's new high.

  • TASR has vaulted to a gain of 15.5% this afternoon, with the stock riding high in the wake of this morning's second-quarter earnings announcement. Now, shares of TASER International, Inc. are poised to end the day above their 50-day moving average for the first time since April 3 -- but they're still sitting on a year-to-date deficit of more than 16%. Short sellers were targeting TASR ahead of today's earnings news, with the number of shares sold short ramping up by 14.3% during the past two reporting periods. With short interest accounting for 6.8% of the stock's float, it looks like some of the weaker bearish hands are hitting the exits amid today's rally.

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