Schaeffer's Trading Floor Blog

Analyst Downgrades: 3D Systems Corporation, Chevron Corporation, and Deere & Company

Analysts downwardly revised their ratings on DDD, CVX, and DE

by 11/20/2014 9:29 AM
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Analysts are weighing in today on 3-D printing specialist 3D Systems Corporation (NYSE:DDD), oil-and-gas issue Chevron Corporation (NYSE:CVX), and farm equipment firm Deere & Company (NYSE:DE). Here's a quick roundup of today's bearish brokerage notes on DDD, CVX, and DE.

  • Jefferies cut its price target on DDD to $42, but underscored its "buy" rating. It's been a dreary 2014 for DDD shareholders, with the stock shedding more than 61% of its value year-to-date to churn at $36.04. In spite of this downward trajectory, there are still pockets of optimism lingering on the Street. Six out of 17 covering analysts maintain a "strong buy" recommendation, and the consensus 12-month price target of $46.30 sits at a 28.5% premium to current trading levels -- and in territory not charted since late September. Should 3D Systems Corporation extend its downward trajectory, another round of bearish brokerage notes may be on the horizon, which could translate into a fresh wave of selling pressure.

  • HSBC weighed in on a number of energy names today, and for CVX, this meant a price-target reduction to $131 from $140, and a reiterated "overweight" rating. On the charts, the stock has sold off with a number of its sector peers in recent months, and since hitting a record high of $135.10 in late July, shares of CVX are down nearly 14% to trade at $116.47. Against this backdrop, option bears have been active, as evidenced by the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.22, which ranks in the 93rd percentile of its annual range. In other words, puts have been bought to open over calls with more rapidity just 7% of the time within the past year.

  • Ahead of next Wednesday morning's fiscal fourth-quarter earnings report, DE saw its price target cut to $78 from $83 at BMO, with the brokerage firm underscoring its tepid "market perform" rating. Technically speaking, the stock has given back 5.5% this year to trade at $86.33, but appears to have found a foothold atop its 120-day moving average, currently located at $86.19. Traders, meanwhile, have shown a distinct bearish bias toward Deere & Company. In the options pits, the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 5.40 ranks higher than 97% of similar readings taken during the past year. Elsewhere, short interest jumped 5.7% over the last two reporting periods, and now accounts for a lofty 11.2% of the security's available float. What's more, it would take two weeks to cover these bearish bets, at average daily trading levels.

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Buzz Stocks: Keurig Green Mountain Inc, Best Buy Co Inc, and General Motors Company

Today's stocks to watch in the news include GMCR, BBY, and GM

by 11/20/2014 9:28 AM
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U.S. stocks are following their European counterparts into the red, as Wall Street stares at a packed economic calendar. Among the equities in focus are coffee king Keurig Green Mountain Inc (NASDAQ:GMCR), electronics retailer Best Buy Co Inc (NYSE:BBY), and beleaguered automaker General Motors Company (NYSE:GM).

  • Although GMCR topped analysts' fiscal fourth-quarter earnings and revenue estimates, and upped its quarterly dividend, the stock is pointed lower as traders pan a weaker-than-expected current-quarter outlook and news that Chief Financial Officer Frances Rathke is departing next year. Specifically, GMCR -- which settled at $153.95 on Wednesday -- is headed for a 2.4% drop out of the gate. From a longer-term perspective, the equity has more than doubled in 2014, and tagged an all-time acme of $158.87 on Tuesday. In the options pits, speculators are likely celebrating the earnings reaction, as long puts have grown increasingly popular on Keurig Green Mountain Inc in recent weeks.

  • BBY, on the other hand, is set to surge 6.9% at the open, as speculators applaud a stronger-than-anticipated third-quarter earnings report. In 2014, the shares of Best Buy Co Inc have slowly attempted to fill a major bear gap from mid-January, and today's expected jump could be what the doctor ordered, as BBY is set to explore territory north of $37 for the first time in 10 months. Meanwhile, a short-squeeze situation could add fuel to the stock's fire, as short interest represents more than a week's worth of pent-up buying demand, at BBY's average pace of trading. On Wednesday, BBY closed at $35.54.

  • GM -- which settled at $32.15 yesterday -- is bracing for a 1% dip at the open. Weighing on the shares is the latest chapter in the recall saga, with the state of Arizona suing the company for $3 billion, alleging General Motors Company endangered the public and intentionally misled consumers about faulty ignition switches that have since been linked to no fewer than 33 deaths. Technically speaking, GM has surrendered 21.3% of its value year-to-date, and has underperformed the broader S&P 500 Index (SPX) by roughly 10 percentage points during the past three months. Still, seven out of 12 analysts maintain "buy" or better opinions -- leaving the door wide open for potential downgrades to exacerbate selling pressure on the shares.

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Analyst Upgrades: Salesforce.com, inc., JetBlue Airways Corporation, and Williams-Sonoma, Inc.

Analysts upwardly revised their ratings on CRM, JBLU, and WSM

by 11/20/2014 9:22 AM
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Analysts are weighing in today on cloud concern Salesforce.com, inc. (NYSE:CRM), airline issue JetBlue Airways Corporation (NASDAQ:JBLU), and home furnishings specialist Williams-Sonoma, Inc. (NYSE:WSM). Here's a quick roundup of today's bullish brokerage notes on CRM, JBLU, and WSM.

  • CRM was met with a mixed bag of brokerage notes, after offering up lower-than-expected current-quarter and fiscal 2016 revenue outlooks. Both Canaccord Genuity and Pivotal Research followed in the recent footsteps of D.A. Davidson, and upped their respective price targets to $70 and $74 -- while underscoring their "buy" ratings. Wedbush, meanwhile, cut its price target to $58 from $61, while reiterating its "neutral" rating. Ahead of the bell, Salesforce.com, inc. is pointed 3% lower, which should please one group of traders. Specifically, short interest jumped nearly 5% over the last two reporting periods, and now accounts for a healthy 6.5% of the stock's available float. What's more, it would take eight sessions to cover these bearish bets, at CRM's average daily pace of trading. Last night, the stock closed at $61.02 -- 10.6% above its year-to-date breakeven line.

  • JBLU received a handful of bullish brokerage notes, after the company announced a number of income-adding strategies yesterday. Included in the bunch was an upwardly revised price target to $17 from $13 at Deutsche Bank, which also reiterated its "buy" rating, and an upgrade to "neutral" from "underperform" at Credit Suisse. Thanks to Wednesday's 4% pop, the stock is now sitting more than 55% higher in 2014. Plus, the equity is positioned to hit another multi-year high out of the gate, with the shares flirting with a 3% lead in pre-market trading. Should JetBlue Airways Corporation continue to make its way up the charts, an unwinding of skepticism could help propel the shares higher. At present, the majority of analysts covering the shares maintain a "hold" or "sell" suggestion. Additionally, one-fifth of the security's float is sold short, representing more than a week's worth of pent-up buying demand, at typical daily trading levels.

  • WSM is pointed 6% higher ahead of the bell, after the company's stronger-than-expected third-quarter earnings report was met with no fewer than eight price-target hikes. The most optimistic outlook came from SunTrust Robinson, which boosted its target price by $2 to $85 (and maintained its "buy" rating), representing expected upside of more than 22% to the stock's current perch at $69.42 -- and a move into uncharted territory. On the sentiment front, option traders were optimistic heading into last night's announcement. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Williams-Sonoma, Inc.'s 50-day call/put volume ratio of 2.44 ranks in the 97th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 3% of the time within the past year.

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Are Options Underpricing the Probability of More Upside?

Maybe the VIX isn't the whole picture when it comes to volatility expectations

by 11/20/2014 8:28 AM
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Yesterday, we noted that the humans rarely "predict" that volatility will go lower. And that "prediction" makes some sense given that the markets themselves rarely predict lower volatility.

I used CBOE Volatility Index (VIX) premiums to realized volatility and VIX futures premium to VIX itself as examples. But there are more ways to gauge expectations out there. I bring you, SKEW -- courtesy of Chicago Board Options Exchange (CBOE):

CBOE SKEW Index values, which are calculated from weighted strips of out-of-the-money S&P 500 options, rise to higher levels as investors become more fearful of a "black swan" event -- an unexpected event of large magnitude and consequence. The value of SKEW increases with the expected tail risk of S&P 500 returns. If there were no tail risk expectations and concerns, SKEW would be close to 100.

The CBOE SKEW Index hit 146.08 on Sept. 19, 2014, its highest level since 1998.

The average daily closing levels for the CBOE SKEW Index were --

> 129.4 in 2014 (through November 17),

> 117.2 in the 24 years from 1990 through 2013.

SKEW compares the implied volatility of out-of-the-money puts to out-of-the-money calls. Thus a reading of 100 would mean the fear of a dip is about equal to the fear of a rip.

Spoiler Alert: SKEW doesn't dip below 100, though it would likely hover around there around a crash. It got as low as 110 in 2008.

It's interesting that SKEW has acted so well in 2014. Volatility as measured by VIX has remained very blah this year, save for the relatively brief February and October spikes. It's averaged about 14 -- coincidentally where we sit right now. SKEW, however, has had a veritable boon.

One way to look at it is that there's excessive fear of a downside "tail." But another is that there's very little "fear" of an upside pop. Mentally, I believe we look at this like the near-the-money options are "fair" and the out-of-the-money puts are on the high end -- ergo, the "tail" hedge. But what if instead we centered our universe on the "tail" hedge and called those options fair? That implies at-the-money options are cheap and out-of-the-money upside options are extremely cheap.

Viewing the whole picture from that angle suggests there's some serious under-pricing of the possibility of more upside. Maybe over-writing calls has become too easy a trade? The biggest risk of a buy-writing strategy is foregone upside (remember, you already own the stock). With realized volatility incredibly low, especially in rally phases, there's not much cost associated with writing and rolling calls. So why not keep doing it?

I'm not predicting any sort of rip. I'm just saying a low VIX/high SKEW combo suggests that options players, net-net, might be underpricing the probability of a strong rally from here.

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


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Analyst Update: Herbalife Ltd., Suncor Energy Inc. (USA), and Target Corporation

Analysts adjusted their ratings on HLF, SU, and TGT

by 11/19/2014 1:57 PM
Stocks quoted in this article:

Analysts are weighing in today on nutritional supplements peddler Herbalife Ltd. (NYSE:HLF), oil producer Suncor Energy Inc. (USA) (NYSE:SU), and retailer Target Corporation (NYSE:TGT). Here's a quick look at today's brokerage notes on HLF, SU, and TGT.

  • HLF is up 0.7% this afternoon to trade at $38.60, after BTIG started coverage on the shares with a "buy" rating. Nevertheless, the stock is down nearly 51% on a year-to-date basis, and got crushed two weeks ago on a disappointing earnings report. Not surprisingly, pessimism is running high on Wall Street. For one, Herbalife Ltd.'s Schaeffer's put/call open interest ratio (SOIR) of 2.66 sits at the top of its annual range. For another, a brow-raising 46% of the stock's float is sold short, which represents more than 17 sessions' worth of pent-up buying power, at average daily trading levels.

  • SU has dropped 1.5% to churn near $34.17, as the market reacts negatively to the company's 2015 spending plan and production outlook. Moreover, the equity received a price-target cut to C$46 from C$47 at National Bank Financial -- though the firm reiterated its "outperform" rating. Taking a step back, shares of Suncor Energy Inc. (USA) are down 2.5% in 2014, and have been pressured lower in recent weeks by their 10-week moving average. Despite this bleak technical picture, the brokerage crowd remains enamored with SU. Nine out of 11 covering analysts have doled out "buy" or better opinions, versus two "holds" and not a single "sell" recommendation. Plus, the consensus 12-month price target of $48.25 stands at a 41.2% premium to the current share price.

  • TGT has rallied 6.5% this afternoon -- hitting an annual high of $73.08 earlier -- and at last check was perched at $71.90. The big move is the result of stronger-than-expected third-quarter results, as well as a price-target lift to $59 from $55 at Deutsche Bank. Taking a step back, the security has been on fire recently, with the shares up 16.3% month-to-date. That said, additional bullish brokerage notes could be forthcoming. Fourteen out of the 20 analysts covering Target Corporation have given it a "hold" or worse rating, and the stock's consensus 12-month price target of $61.04 represents a discount to current trading levels. In other words, a round of upgrades and/or price-target hikes could result in tailwinds for TGT.

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