Schaeffer's Trading Floor Blog

Earnings on Deck: Akamai Technologies, Inc., Alcatel Lucent SA (ADR), and Yelp Inc

Taking a closer look at AKAM, ALU, and YELP ahead of tonight's earnings results

by 7/30/2014 11:01 AM
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Wall Street has digested a bevy of earnings reports this week, and tonight, cloud concern Akamai Technologies, Inc. (NASDAQ:AKAM), telecom issue Alcatel Lucent SA (ADR) (NYSE:ALU), and online review agent Yelp Inc (NYSE:YELP) are all due to report. Here's a quick look at AKAM, ALU, and YELP as earnings approach.

  • One day after announcing a new joint venture with Microsoft Corporation (NASDAQ:MSFT), shares of AKAM are up 2.2% at $60.30. While the day's advance is testing recent resistance at this round-number area -- which coincides with peak call open interest in the August series of options -- another well-received earnings report could help catapult the stock through this congestion. In fact, after besting analysts' bottom-line estimates in each of the past seven quarters, AKAM has averaged a one-week post-earnings gain of 4.7%. For Akamai Technologies, Inc.'s second quarter, Wall Street is calling for a per-share profit of 55 cents -- a 9-cent improvement over what the company earned one year ago.

  • ALU has been charting a path steadily lower in 2014, with the stock off about 15% to churn near $3.73. If past is prologue, though, the security could be poised to pare a portion of these losses after it reports earnings this evening. Specifically, despite falling short of consensus bottom-line estimates in five of the past seven quarters, Alcatel Lucent SA (ADR) has averaged a single-session post-earnings gain of 2.4%, which widens to 4.9% when going out one week. Regardless, the brokerage bunch remains mixed toward the underperformer. While 70% of covering analysts maintain a "hold" or "sell" suggestion toward the stock, the consensus 12-month price target of $4.90 stands at a steep 31% premium to current trading levels, and in territory not charted since July 2011.

  • There's a bullish pre-earnings buzz building on YELP today, with the shares up 6.2% at last check to trade at $73.69. This isn't too surprising, though, considering over the past eight quarters, the equity has averaged a 10% gain in the three-session period subsequent to reporting. Another well-received report could shake some of the weaker bearish hands loose, with nearly 15% of the stock's float sold short at present. Additionally, the security could benefit from a round of post-earnings upgrades, as roughly 27% of covering analysts have levied a "hold" or "strong sell" suggestion toward YELP. For the company's second quarter, the consensus estimate is for a per-share loss of 3 cents -- a 2-cent decline over Yelp Inc's year-ago results.

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Analyst Downgrades: Buffalo Wild Wings, Panera Bread Co, and United Parcel Service, Inc.

Analysts downwardly revised their ratings on BWLD, PNRA, and UPS

by 7/30/2014 9:21 AM
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Analysts are weighing in today on sports bar chain Buffalo Wild Wings (NASDAQ:BWLD), fast-casual eatery Panera Bread Co (NASDAQ:PNRA), and package delivery issue United Parcel Service, Inc. (NYSE:UPS). Here's a quick roundup of today's bearish brokerage notes.

  • BWLD is set to open more than 7% lower from last night's close at $167.15, after the company issued weaker-than-expected full-year guidance last night. This morning, the stock also got hit by a pair of bearish brokerage notes, as Barclays and Wunderlich cut their respective price targets to $187 (from $190) and $170 (from $180). Taking a step back, short sellers -- as well as yesterday's put buyers -- are likely rejoicing at the pre-market sell-off, as 8.7% of Buffalo Wild Wings' float is sold short.

  • Last night, PNRA reported a second-quarter per-share profit in line with the consensus view, but fell short of the average quarterly revenue estimate and lowered its full-year guidance. This news was met with a bearish note from Barclays, which slashed its price target on Panera Bread Co to $167 from $174, and maintained its "equal weight" rating. Analysts are generally split over PNRA's prospects, with nine firms handing out "strong buy" endorsements, compared to eight "holds" and three "strong sell" recommendations. The equity closed at $146.62 yesterday.

  • Finally, UPS received reduced price targets from Baird (to $105 from $110) and Deutsche Bank (to $120 from $122), after the company missed the consensus second-quarter earnings estimate on Tuesday morning and fell 3.7% during the ensuing session. The move lower sent the shares south of the century mark for the first time since early May, and the stock is now down roughly 6% year-to-date. That said, additional price-target cuts could be on the way. United Parcel Service, Inc.'s consensus 12-month price target checks in at $110.38, or roughly 12% above the security's Tuesday finish at $98.86.

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Buzz Stocks: Tesla Motors Inc (TSLA), Amazon.com, Inc., Ford Motor Company, and Amgen, Inc.

Stocks in the news today include TSLA, AMZN, F, and AMGN

by 7/30/2014 9:07 AM
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U.S. stock futures are broadly higher this morning, catching a lift from a stronger-than-forecast 4% rise in gross domestic product (GDP) during the second quarter. In company news, today's stocks to watch include electric automaker Tesla Motors Inc (NASDAQ:TSLA), online retailer Amazon.com, Inc. (NASDAQ:AMZN), car and truck giant Ford Motor Company (NYSE:F), and biotech issue Amgen, Inc. (NASDAQ:AMGN).

  • Tesla Motors Inc (NASDAQ:TSLA) is going to play ball with China on electric car-charging standards, according to media reports coming out of the mainland. The country's official standard for charging electric autos is still a work in progress, but an exec for TSLA said the company "is willing to cooperate with China" and work toward compatibility with the new system. Traders should look for TSLA to remain in focus during the next couple of sessions, with second-quarter earnings due out after Thursday's closing bell. (MarketWatch)

  • Amazon.com, Inc. (NASDAQ:AMZN) is plowing $2 billion into its India business, as CEO Jeff Bezos declared the key emerging market "is on track to be our fastest country ever to a billion dollars in gross sales." Separately, AMZN continues to spar with publisher Hachette Book Group over e-book pricing, with the retailer arguing in a Tuesday statement that a lower price point generates greater overall revenue. (Reuters; Bloomberg)

  • Ford Motor Company (NYSE:F) is raising prices on its lighter, aluminum-bodied 2015 F-150 pickups. Compared to 2014 models, the price increases range from $395 for the XL to $3,615 for the King Ranch model. (Tech Times)

  • Amgen, Inc. (NASDAQ:AMGN) announced plans to cut at least 2,400 jobs globally, or 12% to 15% of its total workforce. The move will take AMGN entirely out of the Seattle market, with the company closing its facilities in the Emerald City and nearby Bothell, Washington. The restructuring plans were announced late Tuesday, along with AMGN's second-quarter earnings. (Seattle Times)

  • On the earnings front, Twitter Inc (NYSE:TWTR), Garmin Ltd. (NASDAQ:GRMN), Sprint Corporation (NYSE:S), and WellPoint Inc (NYSE:WLP) were among the big names to report their latest quarterly results. (Barron's; Reuters, via MSN Money; Re/code; AP, via ABC News)

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Analyst Upgrades: AT&T Inc., Verizon Communications Inc., and Southwest Airlines Co

Analysts upwardly revised their ratings on T, VZ, and LUV

by 7/30/2014 8:47 AM
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Analysts are weighing in today on telecom firms AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ), as well as air-transportation issue Southwest Airlines Co (NYSE:LUV). Here's a quick roundup of today's bullish brokerage notes.

  • T rallied 2.6% yesterday to $36.59, after Windstream Holdings, Inc. (NASDAQ:WIN) received regulatory approval to spin off part of its telecommunications network into a real estate investment trust (REIT). Macquarie responded this morning, raising its price target on AT&T Inc. to $38 from $37, while maintaining its "neutral" rating. Should the shares continue to rally, additional bullish brokerage notes could be on the way. T's consensus 12-month price target (at $36.09) stands at a discount to current trading levels, and half of the equity's 22 covering analysts give the stock a tepid "hold" endorsement.

  • VZ also gained due to the aforementioned WIN news, closing nearly 1% higher at $51.97. In response, Macquarie upped its price target on the Dow component to $53 from $52 (though it also downgraded the shares to "neutral" from "outperform"). Taking a step back, the brokerage bunch is bullish toward Verizon Communications Inc., with 24 out of 28 covering analysts doling out a "buy" or better rating, compared to four holds and not a single "sell" recommendation.

  • Finally, LUV has been flying high on the charts, more than doubling in value on a year-over-year basis to trade at $28.71. Accordingly, J.P. Morgan Securities raised its price target on the shares to $29.50 from $26 -- though the firm also reaffirmed its "underweight" opinion. Generally speaking, the Street doesn't see much upside ahead for Southwest Airlines Co, as the equity's consensus 12-month price target of $32.07 is less than 12% above Tuesday's closing price. That said, if additional price-target hikes materialize, LUV shares could get a lift.

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Why Now is Not the Time to Worry

How constant disbelief can be a good thing for the market

by 7/30/2014 7:40 AM
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Number one on the Bull Market ThreatDown? Bears! Market bears, I mean.

First we have this, from Bloomberg:

Signs of anxiety are returning to the U.S. stock market as it hovers near an all-time high.

The Chicago Board Options Exchange's Volatility Index has risen 8.6 percent in July to 12.56, poised for the biggest monthly advance since January. That's led traders to add almost $200 million to the largest exchange-traded fund linked to market swings, data compiled by Bloomberg show.

Rising volatility has boosted trading in VIX futures. About 384,000 contracts changed hands on July 17, after a Malaysian Airlines passenger jet crashed and Israel sent ground forces into the Gaza Strip. That was the third-highest daily volume on record for the contracts, according to CBOE. The VIX jumped 32 percent that day to 14.54, a three-month high.

And if that's not enough for you, we have this from the The Wall Street Journal's "Morning MoneyBeat:"

An ominous signal is rising from the options market, where the pile of bearish options bets is growing larger by the day.

The average of outstanding "put" options on the S&P 500 and the S&P 100 indexes last week rose to twice the number of bullish "call" options, said Jason Goepfert, founder of Sundial Capital Research.

Only twice during the past 20 years has that ratio been so lopsided to the bearish side -- in mid-February 1996 and in July 2007, Mr. Goepfert said.

Both times, the market floundered in the weeks and months ahead.

"Mostly," Mr. Goepfert wrote, "the higher the [put/call ratio], the more likely stocks would struggle."

So look out below! Or not.

I know, I'm a broken record on this topic, but I just don't find it bearish if everyone is bearish. Do two articles highlighting options and volatility action with a bearish tilt make a representative sample? Of course not. But then again, the Journal article uses a sample size of two non-specific data points to note that excess put action has bearish implications. On the other hand, I do like Jason Goepfert's numbers, so I'm going to run on the assumption there's more evidence to back up the assertion that this set-up has not boded well for the market over some time frame.

In principle, though, I don't agree with the general premise. We've clearly had a nice bull run here, but part of what keeps it going is the constant disbelief in the move. Loading up on CBOE Volatility Index (VIX) futures and puts at what looks like a near-top is as clear evidence as any of the masses voting with their wallets against the market. And, anecdotally, I find that bullish on the margins.

If I was rooting for a dip (and I'm absolutely not), I would want almost the exact opposite. I'd want scant interest in VIX futures. I'd want everyone buying calls, and I'd want everyone's dentist to be bragging about their day-trading acumen.

I'm not going to go out and load up long based off two coincidental articles in major publications. I just disagree with the general premise that a rush to bearish posture amidst generally very good times is a reason for worry.

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


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