Schaeffer's Trading Floor Blog

Analyst Upgrades: JPMorgan Chase & Co., Goldman Sachs Group Inc, and Morgan Stanley

Analysts upwardly revised their ratings on JPM, GS, and MS

by 7/21/2014 9:09 AM
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Analysts are weighing in today on financial heavyweights JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc (NYSE:GS), and Morgan Stanley (NYSE:MS). Here's a quick roundup of today's bullish brokerage notes.

  • JPM scored a double dose of upbeat analyst attention this morning. Nomura lifted its price target on the blue chip to $64 from $62, and FBR upgraded the stock to "outperform" from "market perform" while lifting its price target to $70 from $55. On the charts, JPMorgan Chase & Co. is hovering just shy of its year-to-date breakeven at $58.48, which has acted as a technical speed bump on several occasions in 2014. JPM closed at $58.23 on Friday.

  • Nomura also offered its two cents on GS, upping its price target on the equity to $168 from $158. The new target still represents a discount to Goldman Sachs Group Inc's Friday close at $171.47, and it's a considerably more skeptical view than the consensus. Currently, the average 12-month price target on GS stands at $176.70 -- not far from the stock's January 2014 multi-year high of $181.13.

  • MS also received a Nomura price-target hike, with the brokerage firm upping its forecast to $37 from $36. Morgan Stanley shares settled at $32.64 on Friday, so the analysts are banking on upside of more than 13% from the equity's current perch. To put that outlook in perspective, MS has gained only 4.1% so far in 2014, but the shares have rallied 18.3% on a year-over-year basis.

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What to Make of the 'Overbought' VIX

Last week's VIX spike was pretty tame, relatively speaking

by 7/21/2014 8:49 AM
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Don't look now, but we have an "overbought" CBOE Volatility Index (VIX)!

... Well, we had an overbought VIX, briefly. I use the VIX closing 20% above its 10-day simple moving average as my strict objective definition of overbought, and we got there on Thursday.

So, let's update the table we just ran a couple weeks ago on overbought VIXes since July 2009.

SPY Performance After a VIX Breakout

Just to refresh, this table shows all 16 instances of my definition of an overbought closing VIX since the beginning of July 2009. I also included the SPDR S&P 500 ETF Trust (SPY) return if you held for one month and for three months. At the bottom, I show the mean and median returns, as well as the returns if you just randomly bought and held for one or three months.

Obviously, we don't know yet how this latest VIX pop plays out, but it's certainly off to a good start. Friday's rally just about offset Thursday's dip. Maybe that was a fake out or a squeeze, and we dip again or maybe Thursday was just a head fake.

It's not too early to make some observations, though.

The overbought VIX came almost right on schedule, to the extent this sort of thing has a schedule. It's tough -- and pointless -- to guess when exactly it's going to happen, but we can safely say it's an event we see about three times a year or so. And given that it was nearly half a year since the last blast, it was simply time.

The ostensible cause was the tragic Malaysia Airlines jet crash, specifically, and global unrest, generally. But a better way to look at this is that the market was due for a shakeout anyway, and this was merely the catalyst. If you like historical parallels, see the April 15, 2013 overbought VIX the day of the Boston Marathon bombing.

Both events are tragic, both understandably get investors a bit scared and cautious, but ultimately, neither is likely going to lead to the end of any long-term move. Quite simply, we all collectively have the attention span of fruit flies. One day, every story on financial news is about the sad events, and every pundit and everyone with a Twitter account is an expert on the subject. And then a day or maybe a week or two later, no one cares, at least as far as investing goes.

Ukraine's not getting resolved any time soon. Nor is Gaza, to name last week's other notable unrest. And neither is going to affect investing all that much over time.

To me, the surprise was that we turned around so quickly, and on a Friday no less. Often, investor fears run rampant going into three days of uncertainty. Not so much this go-around.

As for the VIX itself, this marks the lowest absolute level for any of these recent "overbought" events. In fact it's the lowest by a lot, 14.54 vs. 17.27 in April 2013. The median of all VIXes since July 2009 is 17.81, so we're considerably below a typical VIX reading in a low-VIX regime. In other words, "overbought" hardly equals panic right now anyway.

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


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Analyst Update: Splunk Inc, Cepheid, and United States Steel Corporation

Analysts adjusted their ratings on SPLK, CPHD, and X

by 7/18/2014 1:40 PM
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Analysts are weighing in today on software stock Splunk Inc (NASDAQ:SPLK), molecular diagnostics specialist Cepheid (NASDAQ:CPHD), and industrial metals producer United States Steel Corporation (NYSE:X). Here's a quick look at today's brokerage notes on SPLK, CPHD, and X.

  • Late Thursday, BMO started coverage of SPLK with a "market perform" rating and $51 price target. The stock is up 1.3% at last check to trade at $46.39, moving higher from support in the $45 area. It's been a rough year for Splunk Inc shares, as they've shed nearly one-third of their value in 2014. However, BMO's lukewarm rating is relatively rare for SPLK. Among the 19 brokerage firms tracking the tech laggard, 14 consider it worthy of a "strong buy."

  • CPHD has tumbled 8.6% to linger at $42.23, with traders responding to the company's downwardly revised earnings forecast for fiscal 2014. The news triggered price-target cuts from ISI Group (to $37), Wedbush (to $55), and Raymond James (to $54), but Needham took a different tack by raising its price target to $52. Stepping back, the average 12-month price target for Cepheid is $53.28 -- about 26% north of the security's current perch. As a result of today's sell-off, CPHD is at risk of closing beneath its 320-day moving average for only the second time since last August.

  • Cowen and Company raised its price target on X to $36 from $34, and the bullish note has pushed the shares 2.6% higher to $27.30. Most brokerage firms are more cautious on United States Steel Corporation, as only 38% of analysts have deemed the stock worthy of a "buy" or better rating. Likewise, bears have sold short a steep 26.7% of X's float, despite the equity's year-over-year gain of more than 51%.

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Earnings on Deck: Hasbro, Inc., Netflix, Inc., and Texas Instruments Incorporated

Taking a closer look at HAS, NFLX, and TXN ahead of their earnings reports

by 7/18/2014 12:31 PM
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Second-quarter earnings season kicks into high gear next week, with toymaker Hasbro, Inc. (NASDAQ:HAS) taking its place in the limelight bright and early Monday morning. After the close, quarterly reports from streaming giant Netflix, Inc. (NASDAQ:NFLX) and semiconductor concern Texas Instruments Incorporated (NASDAQ:TXN) are due. Here's a quick look at this trio of names as earnings approach.

  • Hasbro, Inc.'s second-quarter earnings report comes on the heels of yesterday's disappointing results from sector peer Mattel, Inc. (NASDAQ:MAT), with analysts expecting HAS to earn a per-share profit of 36 cents. Over the past eight quarters, Hasbro has bested bottom-line expectations six times, resulting in an average single-session post-earnings gain of 3%. Option traders have been growing increasingly bearish ahead of Monday morning's scheduled event, per the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 3.64, which ranks in the 83rd percentile of its annual range. In today's session, the equity was last seen 0.3% higher at $53.07.

  • NFLX has a history of making volatile moves in the wake of its quarterly results. Over the past eight quarters, the stock has jumped an average of 5% in the session subsequent to reporting -- which includes a late-January 16.5% pop following a fourth-quarter bottom-line win. After the close on Monday, analysts are anticipating a second-quarter profit of $1.15 per share for Netflix, Inc. -- a 66-cent improvement over the company's year-ago results. Put buyers have been active on NFLX of late, and outside of the options pits, more than 9% of the equity's float is sold short. Should NFLX unveil another well-received earnings report, an unwinding of these bearish bets could help fuel the stock's fire. This afternoon, the security has extended its year-to-date lead to nearly 20%, up 0.4% to trade at $441.37.

  • Over the previous eight quarters, TXN has matched or exceeded consensus profit estimates each time, resulting in a single-session post-earnings advance of 1.1%, on average. For Texas Instruments Incorporated's second quarter, expectations are for a profit of 59 cents per share, which is one penny more than what the firm banked last year. Another bottom-line win could encourage the skeptical brokerage bunch to re-evaluate their ratings on the stock. Currently, 68% of covering analysts maintain a "hold" or worse suggestion toward TXN, while the consensus 12-month price target of $49.22 is just a stone's throw away from the security's present price of $48.76.

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Stocks On the Move: Key Energy Services, Inc., Nu Skin Enterprises, Inc., and RealPage, Inc.

KEG, NUS, and RP are moving sharply in Friday's trading

by 7/18/2014 11:35 AM
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Around midday, three of the top market movers are oil well servicer Key Energy Services, Inc. (NYSE:KEG), personal care maven Nu Skin Enterprises, Inc. (NYSE:NUS), and software concern RealPage, Inc. (NASDAQ:RP). Here's a quick roundup of how this trio of names is performing on the charts so far.

  • KEG has plummeted nearly 13% to hover around $7.30, after issuing a lackluster second-quarter outlook last night, and receiving no fewer than three bearish brokerage notes, including a downgrade (to "sector perform") and price-target cut (to $9) at Howard Weil. The shares are now solidly in the red on a year-to-date basis, and trading below their 320-day moving average for the first time since early February. Additional bearish brokerage notes could be on the way, too. Four out of nine covering analysts still rate Key Energy Services, Inc. a "strong buy" -- compared to five "holds" and not a single "sell" -- and the equity's consensus 12-month price target rests at $10.42, or roughly 43% above the current share price.

  • NUS is down 8.2% to trade at $61.03 -- not far from the security's new annual low of $60.80, touched earlier. The sell-off is the result of a downgrade to "underperform" from "neutral" at BofA-Merrill Lynch. This isn't good news for Nu Skin Enterprises, Inc.'s option bulls. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a call/put volume ratio of 4.35, which is higher than 80% of other readings from the past year. If these optimistic option players capitulate amid NUS' technical weakness, additional losses could be on the way.

  • RP has dropped even more severely than the two aforementioned names, currently off approximately 20% at $17.10. Last night, the company offered up underwhelming preliminary results for the second quarter, including lower-than-expected revenue guidance. Subsequently, RealPage, Inc. was met this morning with bearish brokerage notes at JMP Securities, RBC, and William Blair. Meanwhile, short sellers are likely cheering RP's move lower, as 9.5% of the equity's float is sold short -- which would take eight sessions to buy back, at the stock's average daily trading volume.


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