Schaeffer's Trading Floor Blog

The Week Ahead: Jobs Data and Earnings from Exxon Mobil Corporation, Twitter, Inc., and General Motors

Next week's calendar features the payrolls report and earnings from Exxon Mobil Corporation (XOM), Twitter Inc (TWTR), and General Motors Company (GM)

by 1/30/2015 11:55 AM
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The Labor Department's closely watched nonfarm payrolls report will punctuate another busy week in the earnings confessional, with Exxon Mobil Corporation (NYSE:XOM), Twitter Inc (NYSE:TWTR), and General Motors Company (NYSE:GM) among the big names reporting. Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

Monday

  • The first week of February kicks off with personal income and spending data, the Markit purchasing managers' manufacturing index (PMI), the Institute for Supply Management's (ISM) manufacturing index, and construction spending. Exxon Mobil (XOM), Advent Software (ADVS), Cliffs Natural Resources (CLF), Hartford Financial (HIG), Owens-Illinois (OI), Pitney Bowes (PBI), and Sysco (SYY) will release earnings.

Tuesday

  • Tuesday's docket includes motor vehicle sales and factory orders. Walt Disney (DIS), BP (BP), Chipotle (CMG), Aetna (AET), Arch Coal (ACI), Archer Daniels Midland (ADM), Array Biopharma (ARRY), Gannett (GCI), Gilead Sciences (GILD), IAC/InterActiveCorp (IACI), Myriad Genetics (MYGN), National-Oilwell Varco (NOV), New York Times (NYT), Take-Two Interactive Software (TTWO), and UPS (UPS) will step into the earnings spotlight.

Wednesday

  • ADP's employment report, the ISM non-manufacturing index, and the Energy Information Administration's (EIA) petroleum status report come out on Wednesday. Merck (MRK), General Motors (GM), Keurig Green Mountain (GMCR), 21st Century Fox (FOXA), Allstate (ALL), Automatic Data Processing (ADP), Atmel (ATML), Boston Scientific (BSX), Clorox (CLX), Glu Mobile (GLUU), GW Pharmaceuticals (GWPH), Humana (HUM), iRobot (IRBT), Level 3 Communications (LVLT), Marathon Petroleum (MPC), Motorola Solutions (MSI), NXP Semiconductor (NXPI), Ralph Lauren (RL), Sony (SNE), Suncor Energy (SU), Tableau Software (DATA), Under Armour (UA), Weatherford (WFT), Whirlpool (WHR), and Yum! Brands (YUM) will report earnings.

Thursday

  • On Thursday, weekly jobless claims, productivity and unit labor costs, and international trade data are slated for release. Twitter (TWTR), GoPro (GPRO), LinkedIn (LNKD), Sirius XM (SIRI), Activision Blizzard (ATVI), AstraZeneca (AZN), Buffalo Wilds Wings (BWLD), Dunkin Brands (DNKN), Expedia (EXPE), LeapFrog (LF), Lions Gate Entertainment (LGF), Michael Kors (KORS), Nu Skin (NUS), ON Semiconductor (ONNN), Pandora Media (P), Philip Morris (PM), Sierra Wireless (SWIR), Sprint (S), Symantec (SYMC), Teva Pharmaceutical Industries (TEVA), and Yelp (YELP) will step into the earnings confessional.

Friday

  • The highly anticipated nonfarm payrolls report comes out on Friday. Alcatel-Lucent (ALU), CBOE Holdings (CBOE), Madison Square Garden (MSG), and Moody's (MCO) will release earnings.

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Analyst Upgrades: Amazon.com, Inc., Visa Inc., and Biogen Idec Inc.

Analysts upwardly revised their ratings on Amazon.com, Inc. (AMZN), Visa Inc (V), and Biogen Idec Inc (BIIB)

by 1/30/2015 10:00 AM
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Analysts are weighing in today on e-commerce concern Amazon.com, Inc. (NASDAQ:AMZN), credit card issue Visa Inc (NYSE:V), and biopharmaceutical firm Biogen Idec Inc (NASDAQ:BIIB). Here's a quick roundup of today's bullish brokerage notes on AMZN, V, and BIIB.

  • AMZN is up 10.9% at $345.69, after the company's fourth-quarter profit handily beat analysts' estimate. The news was met with a round of upbeat analyst attention, with a price-target boost to $400 from $380 at Jefferies, and a $75 price-target hike to $425 at Benchmark, included in the bunch. Heading into today's session, the shares had done little to inspire confidence in 2014, and were sitting just 0.5% above their year-to-date breakeven mark. If the shares are able extend today's rally, another round of upwardly revised price targets or an unwinding of put positions could be on the horizon. Amazon.com, Inc.'s average 12-month price target of $359.11 is within chip-shot of current trading levels.

  • V received no fewer than five price-target hikes, after the firm unveiled a stronger-than-expected fiscal first-quarter earnings report, and announced a four-for-one stock split that will go into effect on Thursday, March 19. Weighing in on the security were Goldman Sachs, which raised its price target by $10 to $280, and SunTrust Robinson, which upped its target price to $310 from $290. FBR, however, downgraded its outlook on V to "market perform" from "outperform," citing a challenging environment and concerns over valuation. The stock had already received love from the brokerage bunch in the lead-up to last night's results, yet options traders were skeptical. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, Visa Inc's 10-day put/call volume ratio of 1.01 ranks in the 75th annual percentile. These bearish bettors could be hitting the bricks, with V up 5.6% to trade at $261.82.

  • BIIB hit a fresh record peak of $397 out of the gate, and was last seen up 11% at $392.04. Sparking the burst of buying power is a a better-than-forecast fourth-quarter earnings report, upbeat full-year outlook, and a bevy of bullish brokerage notes. BMO, for instance, raised its price target to $495 from $474, while Cowen and Company raised its target price to $425 from $389. Both brokerage firms maintained their "outperform" ratings. Should the shares add to their 15% year-to-date advance, more price-target hikes -- or a continued shift in sentiment in the options pits -- could come down the pike. The stock's consensus 12-month price target of $383 stands at a discount to Biogen Idec Inc's present perch.

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Analyst Downgrades: Alibaba Group Holding Limited, Deckers Outdoor Corporation, and Google Inc.

Analysts downwardly revised their ratings on Alibaba Group Holding Ltd (BABA), Deckers Outdoor Corp (DECK), and Google Inc (GOOGL)

by 1/30/2015 9:43 AM
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Analysts are weighing in today on Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA), footwear seller Deckers Outdoor Corp (NYSE:DECK), and tech titan Google Inc (NASDAQ:GOOGL). Here's a quick roundup of today's bearish brokerage notes on BABA, DECK, and GOOGL.

  • Following yesterday's lackluster earnings report -- and a resultant 9% loss -- BABA is getting hit with a round of bearish brokerage notes. Specifically, no fewer than nine analysts reduced their price targets on the stock -- the deepest of which came from Raymond James, which slashed its target by $12 to $108, but preserved its "outperform" rating. Out of the gate, though, Alibaba Group Holding Ltd is down 1.7%. This negative attention represents a change of pace for the brokerage crowd, as all 21 firms tracking the stock rate it a "buy" or better. What's more, BABA's consensus 12-month price target of $117.95 stands at a 33.6% premium to the current price of $88.30. In other news, the company's financial services affiliate is reportedly eyeing a 2016 initial public offering.

  • DECK is getting hit with negative analyst notes, after cutting its current-quarter and full-year forecasts, and reporting disappointing fiscal third-quarter results. Specifically, no fewer than nine analysts lowered their price targets, including Buckingham, which trimmed its target to $75 from $81, and reaffirmed its "neutral" opinion. Accordingly, Deckers Outdoor Corp has plunged 15.1% out of the gate to trade at $69.90 -- and, in the process, hit a new annual low of $67.30. This ought to be music to the ears of short sellers. More than 19% of DECK's float is dedicated to short interest, which represents nearly eight times the stock's typical daily trading level.

  • Finally, GOOGL is up 2.4% this morning at $525.31, despite last night's earnings miss and a rush of downbeat brokerage attention. Specifically, no fewer than 11 analysts reduced their price targets, compared to four that upped them. Longer term, Google Inc shares have struggled since topping out at $615.04 in late February, shedding 14.6%. Meanwhile, these option bears are still holding out hope for an eleventh-hour reversal in the stock.

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Buzz Stocks: Intercept Pharmaceuticals, Inc., Gilead Sciences, Inc., and The Manitowoc Company, Inc.

Today's stocks to watch in the news include Intercept Pharmaceuticals Inc (ICPT), Gilead Sciences, Inc. (GILD), and Manitowoc Company Inc (MTW)

by 1/30/2015 9:21 AM
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Futures are pointed sharply lower this morning, as traders react to fourth-quarter gross domestic product (GDP) data. Meanwhile, among specific equities in focus are drugmakers Intercept Pharmaceuticals Inc (NASDAQ:ICPT) and Gilead Sciences, Inc. (NASDAQ:GILD), as well as big machinery manufacturer Manitowoc Company Inc (NYSE:MTW).

  • ICPT is nearly 28% higher in electronic trading -- and on pace to fill its early November bear gap -- after the Food and Drug Administration (FDA) granted the firm's lead treatment for nonalcoholic steatohepatitis (NASH), obeticholic acid, with "breakthrough therapy designation." The stock has done well in 2015, tacking on 9.4% to trade at $170.69, yet sentiment is skewed toward the skeptical side. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.04 ranks in the 74th annual percentile. Elsewhere, nearly 23% of Intercept Pharmaceuticals Inc's float is sold short, and would take nearly a week to cover, at ICPT's average daily trading volume.

  • GILD is also up ahead of the bell, after the FDA approved a pair of fixed-dose HIV drugs -- one produced by Johnson & Johnson (NYSE:JNJ), and one by Bristol-Myers Squibb Co (NYSE:BMY) -- that use a boosting agent developed by the biopharmaceutical firm. On the charts, GILD has been charting a path higher over the past 52 weeks, adding nearly 28% to linger at $104.18. Not surprisingly, short-term speculators have shown a preference for calls over puts, as evidenced by the security's Schaeffer's put/call open interest ratio (SOIR) of 0.67, which ranks lower than 73% of similar readings taken in the past year. This optimism is shared elsewhere on the Street, as well, with 76% of covering analysts maintaining a "buy" or better rating. Looking ahead, Gilead Sciences, Inc. is slated to take its turn in the earnings confessional after next Tuesday's close.

  • Amid pressure from activist investors -- including Carl Icahn -- MTW announced it is splitting itself into two separate companies, one for its crane manufacturing business, and one for its food service division. The news came as the firm also unveiled its fourth-quarter earnings report. On the charts, the equity has had a dreary start to the year, down 12.9% at $19.24. Against this backdrop, options traders have been placing bearish bets over bullish at a faster-than-usual clip, per Manitowoc Company Inc's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.80, which ranks in the 60th annual percentile. Echoing this is the security's SOIR of 0.77, which ranks higher than 85% of similar readings taken in the past year. Ahead of the bell, MTW is pointed 4.5% higher.

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TDs, Safeties, and Gisele: Breaking Down the Big-Game Prop Bets

What do Wall Street and Vegas have in common?

by 1/30/2015 8:19 AM
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Super Bowl Sunday is finally upon us! Which means, of course, wings, squares, and prop bets! I'm not really a big wings fan … but I love prop bets and I love square pools (though I've literally never won so much as a quarter in a square pool).

I can't offer much in the way of "edge," since they're generally all drawn randomly. But if you happen to stumble on a squares "auction" -- or someone interested in selling their draw -- NumberFire has a guide to the value of each square. This brings us to prop bets!

It's an interesting year in that the game itself is close to pick-'em as I type. The majority of bets and the majority of the total dollars bet apparently tilt toward the Patriots so far. But most of the money still remains on the table. The expectation is that the Pats will go out as small favorites, at most -2.5.

Why does that matter for many props? Well, it implies a host of them are even-money propositions, such as "team to score first," "first-quarter spread," et. al. This means they don't offer much value-add. If you like the Pats in any of those sort of props, just bet them straight up.

But there are plenty of interesting ones out there. And there's a common theme. The lion's share are priced with the "negative" money at about fair value, because the lion's share of the public wants to make "positive" money bets.

Let me explain. Let's say the probability of Super Bowl prop "X" happening is 33.3%. That implies the fair price of a Super Bowl prop is -200 "no" (bet $200 to win $100) and +200 "yes" (risk $100 to win $200). The majority of players will want the "yes" bet. So books will price Prop X at something like -200 for "no" and +170 "yes." "No" players will have about zero edge, whereas "yes" players have a sizable negative edge.

This reminds me of our out-of-the-money call pricing when I was a market maker and everything was singly listed. The entire world wanted to overwrite calls, so we posted offers at or below fair value, and posted bids as much below fair value as we could.

Long story short, if we want to find value, we're most likely to find it in "negative" plays. So here we go (all lines from 5dimes):

Super Bowl prop bet lines

In Super Bowl history, teams that scored first have won 32 times in 48 tries -- but that's not the best way to analyze this one. It's a small sample, and it's not necessarily comparable to this matchup of even teams.

But as luck would have it, it's close to the right number. There are a few variables to this. No. 1 is who actually scores first. If it's the favorite, the odds are much better. But there's no favorite here, so scratch that. Variable No. 2 is what type of score. According to another prop (more on that next), there's a 60% chance that first score is a touchdown. And finally, variable No. 3 is whether the team that scores first gets the ball to start the second half. That's less than 50%, but if it is in fact that team that didn't get the first-half kick, the odds get even better.

Anyways, I threw this all into the calculator at Advanced Football Analytics and I believe the "fair" price for this prop is about -195. So there's some edge at -165.

Super Bowl prop bet lines

Add it all up, and it's pretty consistent with the over/under of 47.5. But the breakdown is slightly off, in my humble opinion. I show them combining for 5.25 touchdowns, but taking under 5.5 at -115 equals roughly 5.35 touchdowns, so that's the tiniest of edges. But I show them combining for 4.2 field goals, so I do think there's edge in over 3.5 at +115. So yes, positive money plays! It's also offered at o3 -152, so it can go negative anyway.

There's a big caveat, though. That's based a lot on the Seahawks great defense and their propensity to force field goal attempts instead of allowing touchdowns. And that depends a lot on the Mike McCarthys of the world playing conservatively on fourth downs (I don't include the NFC championship game in the numbers, so that field goal number might skew even higher). Bill Belichick is not that sort of play caller, so there's certainly less edge than numbers suggest. I still like it, though.

Super Bowl prop bet lines

In 2014, there was an average of 0.41 non-offensive touchdowns scored per game. Neither the Seahawks nor Patriots is much different from the league average. It sounds like a Poisson problem. As an aside, starting a discussion of Poisson probabilities is a great way to clear everyone out of a Super Bowl party.

Anyways, if I throw those numbers into an online Poisson Calculator, it suggests that the above prop is worth about 195. So there's modest value in the "offense scores all touchdowns" side at -185. The same exercise on safeties says that prop is worth 1170, so again, you're better off saying "no safety" at -950.

But let's face it, no one's doing that. The Super Bowl saw very few safeties until the Giants got one against the Patriots three years ago. And now we've had those three years in a row. Even minus that (utterly meaningless) trend, few are risking $950 to win $100, and few are bothering to risk $95 to win $10. Books know that, and that's why they price it as such.

And finally …

Super Bowl prop bet lines

It seems pretty bearish on Gisele sightings. And I think the national anthem is usually longer … maybe "sharps" have scouted Idina Menzel and found she buzzes through that "Frozen" song in concert.

In other words, I have no clue. What I do know is that books make enough on prop bets that even if the game "middles" on them, they still come out way ahead. Forty-cent spreads on "fun" props and markets tilted toward "order flow" on ones you can value, all multiplied by huge volume, makes it a great payday in Vegas. So most importantly, enjoy the game!

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


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