Schaeffer's Trading Floor Blog

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
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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, 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, 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, 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
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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., 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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Markets are little changed this afternoon, as traders take a wait-and-see approach to this week's Federal Open Market Committee (FOMC) policy-setting meeting. Among equities making notable moves, however, are mobile security specialist NQ Mobile Inc (ADR) (NYSE:NQ), oil-and-gas issue Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), and at-home beverage maker SodaStream International Ltd (NASDAQ:SODA). Here's a quick look at how NQ, PBR, and SODA are performing on the charts so far.

  • NQ has rallied more than 7% to trade at $9.58, after filing its twice-delayed annual report for 2013. In a response to the filing, Muddy Waters Research Group -- which accused NQ Mobile Inc (ADR) of deception -- said the company "remains a massive fraud" and that its auditor displayed prejudice. Heading into today's session, the stock was down 39.2% year-to-date, yet traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 9.85 calls for each put over the past 20 sessions. With nearly 58% of the security's float sold short, a portion of this activity, specifically at out-of-the-money strikes, could be a result of short sellers hedging their bearish bets against a big move higher.

  • PBR has shed 15% -- and been placed on the short-sale restricted (SSR) list -- after left-wing incumbent Dilma Rousseff was narrowly named the victor in Brazil's presidential election. The stock was swinging wildly in the weeks leading up to the election, and thanks to today's sharp sell-off, which has the shares lingering near $10.99, Petroleo Brasileiro Petrobras SA (ADR) is staring at a 22.6% month-to-date deficit. On the sentiment front, the equity's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.41 ranks higher than 95% of similar readings taken in the past year, meaning puts have been bought to open over calls at a near-annual-high clip in recent months. Today, though, calls are crossing the tape at a rate three times the intraday average. Meanwhile, now that the uncertainty surrounding the election has lifted, the equity's 30-day at-the-money implied volatility has plunged 56% to 56.5%.

  • After surging more than 15% on Friday following news of a freshly inked partnership with PepsiCo, Inc. (NYSE:PEP), SODA is down 9.7% to churn near $22.08, as traders take some profits off the table ahead of Wednesday's early morning earnings report. Today's price move highlights the stock's withstanding technical troubles, with SODA surrendering more than 55% of its value in 2014. Not surprisingly, sentiment around the Street is tilted toward the bearish side. At the ISE, CBOE, and PHLX, for example, the security's 10-day put/call volume ratio of 1.59 ranks 7 percentage points from a 52-week peak. Elsewhere, all nine analysts covering SodaStream International Ltd maintain a "hold" or "strong sell" suggestion.

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Analyst Update: Transocean LTD, Diana Shipping Inc., and Wayfair Inc

Analysts offered their two cents on RIG, DSX, and W

by 10/27/2014 1:34 PM
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U.S. stocks are modestly lower at midday, as Wall Street digests the latest earnings and economic reports, along with a downwardly revised crude forecast from Goldman Sachs. The brokerage firm also weighed in on commodity concern Transocean LTD (NYSE:RIG), while dry bulk shipper Diana Shipping Inc. (NYSE:DSX) and Wall Street rookie Wayfair Inc (NYSE:W) are reacting to their own brokerage notes.

  • RIG is down 4.2% at $28.93 -- likely to the delight of recent option sellers -- after Goldman Sachs took a hatchet to several price targets under the offshore drilling umbrella. For RIG, specifically, the analysts cut their price target to $18 from $26, and underscored a "sell" suggestion. Negative analyst notes are nothing new for Transocean LTD, though, as just one out of 17 maintains a "strong buy" opinion. Meanwhile, the security's Schaeffer's put/call open interest ratio (SOIR) of 2.41 sits just 2 percentage points from a 52-week peak, implying that short-term options speculators have rarely been more put-biased during the past year. It's no wonder, as RIG has surrendered 41.4% in 2014, pressured beneath its 10-day and 20-day moving averages.

  • Likewise, DSX was last seen 6.1% lower at $8.13 -- and earlier came within striking distance of a new annual low, bottoming at $7.82 -- after Jefferies waxed pessimistic on the dry bulk shipping sector. For DSX, specifically, the brokerage firm sliced its price target to $10 from $18, and downgraded the shares to "hold" from "buy." Diana Shipping Inc. has given up 38.8% so far this year, yet today's downgrade represents a shift in sentiment among analysts. In fact, DSX boasts six "buy" or better ratings, compared to three "holds" and not a single "sell." Plus, the average 12-month price target of $13.25 represents expected upside of 63% to the stock's current perch. Additional downgrades and/or price-target cuts could push DSX into new-low territory.

  • Finally, W is bucking the trend lower, up 4.5% at $26.30. Nevertheless, the security is trading at a 27% discount to its Oct. 2 IPO price of $36, but analysts are optimistic toward the online home-goods retailer. No fewer than eight brokerage firms offered their two cents on Wayfair Inc, and Piper Jaffray said the company's sales could grow significantly in the coming years, offering up an "overweight" rating and $40 price target. Likewise, Goldman Sachs and Citigroup initiated coverage with "buy" endorsements, and Pacific Crest, Wells Fargo, Cowen and Company, and Raymond James launched coverage with "outperform" recommendations.

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