Schaeffer's Trading Floor Blog

Analyst Update: Cliffs Natural Resources Inc, Buffalo Wild Wings, and DryShips Inc.

Analysts offered their two cents on CLF, BWLD, and DRYS

by 10/28/2014 12:50 PM
Stocks quoted in this article:

U.S. stocks are cautiously higher at midday, as Wall Street weighs a mixed bag of economic data and awaits the start of the Federal Open Market Committee's (FOMC) two-day policy meeting. Among equities attracting the attention of analysts are mining issue Cliffs Natural Resources Inc (NYSE:CLF), fast-casual restaurateur Buffalo Wild Wings (NASDAQ:BWLD), and dry bulk shipping concern DryShips Inc. (NASDAQ:DRYS).

  • CLF is the biggest percentage gainer on the Big Board thus far -- and was temporarily halted earlier -- up 18% at $10.90. The stock is soaring after Cliffs Natural Resources Inc reported stronger-than-anticipated quarterly earnings, and assured shareholders it has "more than enough liquidity." Furthermore, CLF is shaking off a price-target cut to $13 from $15 at RBC, which also reiterated its "sector perform" rating. It looks like short sellers could be hitting the bricks, as more than half of the stock's float is dedicated to short interest. In addition, short-term options traders could be dumping their bearish bets. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.70 stands higher than three-quarters of all other readings from the past year, suggesting near-term speculators were more put-heavy than usual heading into earnings.

  • BWLD is among the best Nasdaq performers, up 12.1% at $150.01, thanks to its own earnings beat. As a result, Morgan Stanley lifted its price target to $141 from $138, and reiterated its "equal weight" assessment, while Baird hiked its price target by $20 to $180, and upgraded BWLD to "outperform." (Buckingham Research, on the other hand, trimmed its price target by $1 to $113, and underscored a chilly "underperform" opinion.) Most analysts are already in the bulls' corner when it comes to BWLD, as the stock boasts 10 "buy" or better endorsements, compared to eight lukewarm "holds." Short-term options players, meanwhile, are more put-biased than usual, as the stock's SOIR of 1.66 sits just 11 percentage points from a 12-month acme. Likewise, short interest grew nearly 33% during the past two reporting periods, and now accounts for close to 12% of BWLD's total available float.

  • Finally, DRYS is up 3.3% at $1.59, after Imperial Capital performed an about-face, upgrading the stock to "outperform" from "underperform," and lifting its price target to $1.90 from $1.40. Nevertheless, DryShips Inc. has surrendered nearly two-thirds of its value in 2014, with recent rebound attempts rejected by its 20-day moving average. It's no surprise, then, to find Wall Street bearishly biased toward DRYS, which sports a SOIR of 0.66 -- above 98% of all other readings from the past year. Plus, short interest nearly doubled during the past two reporting periods, and Imperial Capital is now the lone brokerage firm not harboring a "hold" or worse opinion.

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Analyst Downgrades: Crocs, Inc., Tiffany & Co., and Twitter Inc

Analysts downwardly revised their ratings on CROX, TIF, and TWTR

by 10/28/2014 9:33 AM
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Analysts are weighing in today on footwear seller Crocs, Inc. (NASDAQ:CROX), upscale jeweler Tiffany & Co. (NYSE:TIF), and microblogging site Twitter Inc (NYSE:TWTR). Here's a quick roundup of today's bearish brokerage notes on CROX, TIF, and TWTR.

  • Following mixed third-quarter results, CROX was met with a bevy of bearish brokerage notes. Specifically, Baird, Buckingham, Goldman Sachs, and Piper Jaffray each lowered their respective price targets, with the former three reaffirming their "neutral" opinions, and the latter underscoring its "overweight" assessment. It's been a rough year for Crocs, Inc., which is down about 28% in 2014 to trade at $11.46, after plunging more than 5% this morning, and touching a four-year low of $11.42. Not surprisingly, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been scooping up long puts (relative to calls) at a faster-than-usual rate in recent weeks. CROX's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.26 stands above roughly two-thirds of all readings taken in the last year.

  • Goldman Sachs trimmed its price target on TIF to $114 from $115, while reiterating its "buy" rating. On the technical front, the shares haven't performed well this year, adding less than 2% to trade at $94.43. In fact, since hitting a record high of $105.66 in late August, the equity has fallen 10.6%. Accordingly, option bears have zeroed in on Tiffany & Co., which sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 7.64 -- just 4 percentage points from an annual high.

  • Finally, TWTR got hit with at least 11 price-target cuts, as well as three ratings reductions, following the company's third-quarter earnings report. While the firm topped the Street's revenue estimates, there are lingering concerns over its user growth and fourth-quarter guidance. As such, Twitter Inc has dropped nearly 13% out of the gate to trade at $42.29. If this downward momentum continues, TWTR could get hit with additional bearish brokerage notes. Currently, 15 out of 28 covering analysts have doled out "buy" or better opinions on the stock.

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Buzz Stocks: Regal Entertainment Group, Receptos Inc, and The Madison Square Garden Co

Today's stocks to watch include RGC, RCPT, and MSG

by 10/28/2014 9:10 AM
Stocks quoted in this article:

Stock futures are notably higher ahead of the bell, as traders weigh a handful of corporate earnings reports, and look ahead to today's kick-off of the Federal Open Market Committee's (FOMC) two-day policy-setting meeting. Among equities in focus are movie theatre maven Regal Entertainment Group (NYSE:RGC), biopharmaceutical firm Receptos Inc (NASDAQ:RCPT), and sports and entertainment issue The Madison Square Garden Co (NASDAQ:MSG).

  • RGC is flirting with a 5% pop before the open, after announcing plans to explore its strategic options -- including the possibility of putting itself up for sale. The company also reported a third-quarter profit that arrived just above analysts' expectations, revenue that fell short of the consensus estimate, and a special dividend payment of $1 per share. The news was met with price-target hikes from Macquarie (to $22) and B. Riley (to $23.25), with both brokerage firms maintaining a "neutral" outlook. Benchmark also weighed in, raising its price target on the security to $22.25 from $21.99, and underscoring its "buy" rating. Overall, the analyst community is split on a stock that's up 5.5% this year to trade at $20.51, with nine "buy" or better ratings levied toward Regal Entertainment Group, versus eight "holds" or worse. Meanwhile, the consensus 12-month price target of $22.39 stands at a tepid 9.2% premium to current trading levels.

  • Credit Suisse boosted its price target on RCPT to $125 from $75, and maintained its "outperform" rating, after the company posted positive mid-stage trial results for its experimental ulcerative colitis drug RPC1063. Against this backdrop, the stock is set to soar 36% out of the gate -- after closing Monday at $67.74 -- and notch new record highs, adding to its already impressive 133.7% year-to-date gain. On the sentiment front, option players at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have shown a distinct bullish bias of late, buying to open 109.79 calls for every put over the past 10 sessions.

  • MSG's board of directors unanimously approved a plan to consider a spinoff of its entertainment and media and sports divisions into two publicly traded companies. "We are exploring the opportunity to improve upon the excellent shareholder return created since MSG's spinoff over four years ago by separating our business into two companies, each with its own distinct value proposition for investors," said President and CEO Tad Smith in a statement. The stock is ready to rally on the news -- as well as an upgrade to "buy" from "hold" and price-target hike to $74 from $66 at ISI Group -- adding 10.5% in pre-market trading. Should the equity extend this positive price action, another round of bullish brokerage notes could be on the horizon. At present, 80% of covering analysts maintain a "hold" rating on The Madison Square Garden Co, while the consensus 12-month price target of $68.50 stands at a 4.1% premium to Monday's closing price of $65.78. Looking ahead, MSG is scheduled to unveil its fiscal first-quarter earnings report Friday morning.

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Analyst Upgrades: GoPro Inc, Micron Technology, Inc., and Salesforce.com, inc.

Analysts upwardly revised their ratings on GPRO, MU, and CRM

by 10/28/2014 8:52 AM
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Analysts are weighing in today on mobile camera maker GoPro Inc (NASDAQ:GPRO), semiconductor issue Micron Technology, Inc. (NASDAQ:MU), and cloud computing expert Salesforce.com, inc. (NYSE:CRM). Here's a quick roundup of today's bullish brokerage notes on GPRO, MU, and CRM.

  • Wedbush started coverage on GPRO with an "outperform" rating and $81 price target. This bullish brokerage note is relatively rare for the stock, which has received just two "strong buy" endorsements, compared to seven "holds" and one "strong sell" recommendation. On the charts, while GoPro Inc shares have more than doubled in value since going public in late June, they've shed 34% since hitting a record high of $98.47 earlier this month, and now rest at $64.91. On the fundamental front, GPRO will release third-quarter earnings this Thursday evening.

  • Following the announcement of MU's $1 billion stock buyback initiative yesterday, the equity saw its price target raised to $42 from $41 at RBC, and to $36 from $34 at Morgan Stanley, which maintained their respective "outperform" and "equal weight" ratings. Technically speaking, Micron Technology, Inc. has been a beast, tacking on 48.5% year-to-date to trade at $32.30. Nevertheless, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been buying to open puts over calls at an accelerated rate lately. Specifically, MU's 50-day put/call volume ratio across those exchanges is 0.34, which ranks higher than 87% of comparable readings from the last year. While some of these positions may have been initiated by shareholders looking to hedge, an unwinding of the "vanilla" bears could result in tailwinds.

  • Finally, CRM was added to Morgan Stanley's "Best Ideas" list. What's more, the brokerage firm upped its price target on the security to $80 from $79, and underscored its "overweight" rating. Elsewhere, shares of Salesforce.com, inc. have added 10.5% year-over-year to trade at $59.11, and over the past three months, have outperformed the broader S&P 500 Index (SPX) by 9.2 percentage points. Nevertheless, short-term option speculators have rarely been more put-skewed than they are now, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.27, which sits just 2 percentage points from a 12-month peak.

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Is It Time to Bargain Hunt Brazil?

The iShares MSCI Brazil Index (ETF) (EWZ) gapped lower after weekend elections

by 10/28/2014 8:00 AM
Stocks quoted in this article:

We interrupt our regularly scheduled CBOE Volatility Index (VIX) and Ebola coverage to bring you... Brazilian election updates!

Brazilian President Dilma Rousseff won a hotly contested runoff election on Sunday.

With more than 99% of votes counted, the incumbent Rousseff had 51.59% of the vote, according to official results. Opposition candidate Aecio Neves garnered 48.41%.

Why does this matter? I mean, as far as I knew, Neymar was the president of Brazil. Apparently, the "pro-business" candidate lost, which served to set up quite the ugly open in Brazil. Here's a look at the one-minute chart of the iShares MSCI Brazil Index (ETF) (EWZ) from Friday's close into Monday's open (click chart to enlarge):

EWZ Weekend Gap

It gapped down about 8%, though it recovered a bit over the morning. Despite the decline, implied volatility tanked as well. Here's the stock over the last few months, with the 10-day realized volatility (purple) and 30-day implied volatility (light blue) at the bottom. I'd note that the Chicago Board Options Exchange (CBOE) indexes EWZ volatility under the symbol VXEWZ, but it's the same as the 30-day volatility here (click chart to enlarge):

30-Day Chart of EWZ

If it looks like something you might see after an earnings report, that's because it's the exact same dynamic. Volatility gets bid up ahead of news, the market reacts, implied volatility implodes, and the options owners win if the stock moves enough to offset the volatility decay.

I didn't have the foresight to look at the screen for the expectations in EWZ. But, I'm guessing EWZ moved within the range.

Amazon.com, Inc. (NASDAQ:AMZN), for example, priced in about a 7.5% move ahead of earnings. It actually moved very close to that, about 8.5% near the open. Implied volatility via the VIX methodology dropped from 44 to about 30 the next morning.

The volatility drop in EWZ was much greater. It closed at 58 on Friday, and was about 30 early Monday. So, it's likely that options holders in aggregate lost money -- that is, options priced in a bigger gap than we actually got (individual mileage may vary). Put holders generally won, to make an obvious observation.

That all suggests the big surprise here would have been if Neves won. Brazil stocks have done very poorly lately heading into this, as you can see in the chart above. Even though the results look pretty close, it sure feels like the BM&F Bovespa SA pretty much discounted them already. I know very little (OK, nothing) about Brazilian economic fundamentals. But, it does feel like a decent time to try to bottom fish in EWZ, if you're so inclined.

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


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