Schaeffer's Trading Floor Blog

Analyst Downgrades: Chipotle Mexican Grill, Inc., Zynga Inc, and IBM Corp.

Analysts issued bearish notes on CMG, ZNGA, and IBM

by 10/21/2014 9:29 AM
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Analysts are downwardly revising their ratings today on burrito chain Chipotle Mexican Grill, Inc. (NYSE:CMG), social gaming specialist Zynga Inc (NASDAQ:ZNGA), and blue-chip tech giant International Business Machines Corp. (NYSE:IBM). Here's a quick look at today's bearish brokerage notes on CMG, ZNGA, and IBM.

  • CMG is poised to open 4.6% lower today, paring its 2014 gain of 22.6%, after the fast-casual restaurant operator predicted slowing sales trends for 2015. Analysts are weighing in on Chipotle Mexican Grill, Inc. this morning, with price-target cuts rolling in from four different firms -- including a decrease to $660 from $680 at Wunderlich. On the other hand, CMG has also racked up three price-target hikes, though Jefferies' upwardly revised target of $630 represents a considerable discount to the stock's Monday close at $653.03. Ahead of CMG's quarterly results, options traders were loading up on puts; the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 1.31, with puts outnumbering calls among options set to expire within three months. This ratio arrives in the 62nd percentile of its annual range, indicating a stronger-than-usual skew toward near-term puts.

  • Benchmark cut its price target on ZNGA to $2.54 from $2.83, and backed a middling "hold" rating on the Tech 2.0 name. Zynga Inc is down nearly 40% year-to-date, and there's room for additional negative notes from analysts. Currently, the average 12-month price target for ZNGA stands at $3.54, representing a 54.6% premium to yesterday's close at $2.29. For the past couple of weeks, the stock has spent most of its time bouncing between $2.20 and $2.40, but ZNGA's upcoming earnings report on the evening of Thursday, Nov. 6, could provide a catalyst for its next big move.

  • On the heels of its major earnings disappointment, IBM was downgraded to "hold" from "buy" at Evercore, with the firm simultaneously dropping its price target to $180 from $210. Meanwhile, at least eight other brokers lowered their price targets for International Business Machines Corp., with a Credit Suisse cut to $125 representing the lowest forecast. IBM finished Monday's session down more than 7% at $169.10, bringing its year-to-date loss to 9.8%. The silver lining for Big Blue is that there's already a healthy amount of skepticism on display from analysts, which means a wave of additional downgrades is relatively unlikely. Already, only 25% of brokerage firms following IBM recommend buying it.

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Buzz Stocks: AbbVie Inc, Staples, Inc., and Facebook Inc (FB)

Today's stocks to watch in the news include ABBV, SPLS, and FB

by 10/21/2014 9:16 AM
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U.S. stocks are headed higher ahead of the bell, as traders digest big-cap earnings and data out of China. Among the equities in focus, today's stocks to watch are pharmaceutical firm AbbVie Inc (NYSE:ABBV), office supplies issue Staples, Inc. (NASDAQ:SPLS), and social networking titan Facebook Inc (NASDAQ:FB).

  • Shire PLC (ADR) (NASDAQ:SHPG) is "officially dead" to ABBV -- as a buyout prospect, anyway. AbbVie Inc last night said it pulled the plug on what would have been an epic merger, in the wake of efforts by the U.S. government to curb so-called tax inversion. ABBV -- which is now on the hook to pay SHPG a $1.64 billion breakup fee, and last night announced a stock-buyback program and dividend increase -- is pointed 1.8% higher in pre-market action. The shares have tacked on 3% in 2014, and touched a record high of $60.02 in mid-September, but have since pulled back to flirt with $54.41. Short sellers have been upping the ante on ABBV, with short interest increasing 19.1% during the past two reporting periods. These bearish bets now represent nearly nine sessions' worth of pent-up buying demand, at the security's average daily trading volume.

  • SPLS is the latest U.S. firm targeted for a possible cyber attack. Last night, the company said it's investigating a possible breach of credit card data and that law enforcement has been contacted. Technically speaking, SPLS has surrendered 22.6% in 2014, finishing at $12.30 on Monday. While analysts are firmly in the bearish camp -- not one of the 14 brokerage firms following SPLS deems it worthy of a "buy" -- option players have been picking up calls over puts at an annual-high clip. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 61.04 sits at a 12-month peak. However, it's worth noting that short interest accounts for 11.7% of Staples, Inc.'s total available float, so some of the recent call buying could be the work of short sellers looking for a hedge.

  • Finally, FB is poised to edge 0.8% higher out of the gate, as traders learn of a legal battle between CEO Mark Zuckerberg and several lawyers who represented New York entrepreneur Paul Ceglia. Specifically, the company is suing the attorneys, claiming they knowingly helped Ceglia pursue a fraudulent lawsuit. If today's upside move pans out, it'll be to the dismay of the recent crop of Facebook Inc option bears, who bet on the equity to retreat by the end of the week. In fact, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.74 sits at an annual peak, as does the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.86, underscoring the bigger-than-usual put bias among near-term speculators. On the charts, FB has soared 40.8% in 2014, landing at $76.95 on Monday. Off the charts, the company will confess its third-quarter earnings after the close next Tuesday.

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Analyst Upgrades: Illumina, Inc., Synaptics, Incorporated, and GrubHub Inc

Analysts issued bullish notes on ILMN, SYNA, and GRUB

by 10/21/2014 9:04 AM
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Analysts are upwardly revising their ratings today on molecular diagnostics firm Illumina, Inc. (NASDAQ:ILMN), tech issue Synaptics, Incorporated (NASDAQ:SYNA), and mobile carryout platform GrubHub Inc (NYSE:GRUB). Here's a quick look at today's bullish brokerage notes on ILMN, SYNA, and GRUB.

  • After the company's strong earnings report last night, ILMN scored an upgrade to "buy" from "neutral" at Janney, along with a price-target hike to $192 from $165. Six other firms also upped their price targets on Illumina, Inc., with JMP Securities lifting its forecast all the way to $245 -- roughly 49% above the stock's close at $164.47 on Monday. Most analysts are already upbeat on ILMN, in light of the equity's year-to-date rally of 48.7%. Among the 18 brokerage firms tracking the shares, 11 have handed out "strong buy" ratings, and there's not a single "sell" to be found. As traders respond to the firm's positive earnings news, ILMN has bounced 10% ahead of the bell.

  • Sterne Agee started coverage of SYNA with a "buy" rating ahead of Thursday night's fiscal first-quarter earnings release. Synaptics, Incorporated has now garnered an almost unanimous vote of confidence from Wall Street, with 89% of analysts deeming the stock a "buy" or better. SYNA has advanced 36.9% year-over-year, with a recent pullback contained by support in the $65 area. However, the stock remains heavily targeted by short sellers, as evidenced by its short-to-float ratio of 12.9%. After closing Monday at $74.94, SYNA has edged fractionally higher in pre-market trading.

  • BMO boosted its price target on GRUB to $44 from $40, implying expected upside of more than 19% from Monday's close at $36.86. GrubHub Inc made its public trading debut back in April, and the stock's current all-time high of $45.80 was reached in mid-August. In recent sessions, the stock's progress has been capped by resistance at its overhead 40-day moving average, now located at $37.37. Despite the recently sluggish price action, BMO's freshly reiterated "outperform" rating is hardly unique for GRUB. Among the eight analysts following the stock, seven call it a "buy" or better.

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Options Check-Up: Canadian Solar Inc., Nokia Corporation (ADR), and Sirius XM Holdings Inc.

Analyzing recent option activity for CSIQ, NOK, and SIRI

by 10/21/2014 8:07 AM
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Among the stocks attracting attention from options traders lately are alternative energy issue Canadian Solar Inc. (NASDAQ:CSIQ), tech concern Nokia Corporation (ADR) (NYSE:NOK), and satellite radio provider Sirius XM Holdings Inc. (NASDAQ:SIRI). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on CSIQ, NOK, and SIRI.

  • CSIQ ended Monday's session 3.3% higher at $28.62, despite another price-target cut at J.P. Morgan Securities, to $37 from $41. However, the brokerage firm also underscored its "overweight" rating on the shares. Year-to-date, Canadian Solar Inc. is down 4%, but options traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been buying to open calls over puts at a rapid-fire rate in recent weeks. Specifically, the stock's 10-day call/put volume ratio across those three exchanges is 3.93, with long calls nearly quadrupling long puts. What's more, this ratio ranks higher than 80% of all other readings from the past year. Those hoping to place short-term bets on CSIQ can currently do so at a relative bargain. The equity's Schaeffer's Volatility Scorecard (SVS) of 96 indicates the shares tend to make outsized moves, relative to what the options market is pricing in.

  • NOK lost 0.6% yesterday to close at $7.89, bringing the shares deeper into the red in 2014. Not surprisingly, speculators have been relatively bearish over the past two weeks, per the stock's put/call volume ratio of 0.42, which registers in the 87th percentile of its annual range. Meanwhile, the cost of short-term Nokia Corporation (ADR) options is fairly typical at present, per the stock's Schaeffer's Volatility Index (SVI) of 41%, which ranks in the 54th annual percentile.

  • Finally, SIRI tacked on 1.8% to close at $3.33, but remains 4.6% lower year-to-date. During the previous two weeks, options traders have bought to open 0.65 put for every call at the ISE, CBOE, and PHLX -- quite a change from one month ago. The resultant put/call volume ratio checks in higher than all but 8% of similar readings taken in the last 12 months, suggesting a stronger-than-usual preference for bearish bets over bullish. Meanwhile, short-term Sirius XM Holdings Inc. options are priced at pretty typical levels. The stock's SVI of 33% is docked in the 46th percentile, looking back 52 weeks.

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IBM and Netflix: Trendsetters or Anomalies?

Why IBM's earnings miss and subsequent plunge could be good for volatility sellers

by 10/21/2014 7:55 AM
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So far this month, the market has exhibited extreme fear on just about everything. Everything, that is, except mundane things -- like earnings reports.

Well, that all changed ahead of Monday's open, as we were treated to a miss and a large gap down in International Business Machines Corp. (NYSE:IBM).

OK, news flash: IBM still exists. I have to be honest, I'm not an "IBM-er." I pay it zero attention. But, when I flipped on the Quotron pre-open and saw Nasdaq Composite (COMP) futures unchanged, the S&P 500 Index (SPX) down slightly, and Dow Jones Industrial Average (DJI) futures down a lot, I figured something must have happened in a stock I ignore.

The fear, though, wasn't confined to the arcane methodology of the Dow and the absurd overweighting of stocks with high absolute price tags per share. Rather, it's that IBM's customers are businesses all over the world, so it must speak badly of the global economy.

Either that, or it's earnings management gone awry.

Others will have to carry on that debate. In my world, it matters more what the options expected and how the stock actually performed. And IBM is not a particularly volatile stock, so this move did catch the marketplace by surprise.

Realized volatility in IBM ticked up recently, along with the rest of the marketplace. Ten-day realized volatility was about 19 pre-earnings, one of its highest levels in 2014. Implied volatility via the CBOE Volatility Index (VIX) methodology was 29, which actually was the high this year.

It's tough to isolate what's earnings anticipation and what's simply part of the global volatility lift. But, for what it's worth, my trading system calculated that IBM priced in a 3.5% move on earnings. The gap on the regular open was about 7.5%, so it did cause options shorts some pain.

I wouldn't have called IBM a high-profile name these days before this. It's still a huge and important company, of course, but it's just not a bellwether sort of name in 2014. But, thanks to the gap, it has thrust itself into the forefront of the third-quarter 2014 earnings "book" currently underway. It will bump up earnings premiums on big names yet to report, like Microsoft Corporation (NASDAQ:MSFT) and, Inc. (NASDAQ:AMZN). And it will put global economic slowdown concerns front and center. Netflix, Inc. (NASDAQ:NFLX) was already a high-profile miss, albeit for more company-specific reasons. If you're of the mindset to sell earnings volatility, you likely will get good prices going forward.

As to earnings reaction estimates themselves, keep in mind that they're all standard deviations. And, as such, one in three names will move in excess of the estimate. Perhaps IBM signals something dire that's not fully baked into this earnings season. Or perhaps it's just that we know we will find many anomalies each earnings season, and IBM and NFLX are the first biggies this quarter.

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

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