Schaeffer's Trading Floor Blog

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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Analysts are weighing in today on insurance issue American International Group Inc (NYSE:AIG), mining company Cliffs Natural Resources Inc (NYSE:CLF), and personal care products marketer Nu Skin Enterprises, Inc. (NYSE:NUS). Here's a quick look at today's brokerage notes on AIG, CLF, and NUS.

  • AIG has edged 0.4% higher to trade at $50.98, following an upgrade to "buy" from "hold" at Deutsche Bank. The brokerage firm likewise raised its price target on the stock by $1 to $60. This, despite shares of American International Group Inc sitting slightly in the red on a year-to-date basis. Elsewhere, options traders have expressed pessimism toward the equity in recent weeks. Specifically, AIG's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.04 sits just 8 percentage points from a 52-week peak.

  • CLF was hit with a downgrade to "sell" from "neutral" -- as well as a price-target cut to $5 -- at Citigroup earlier, but has nonetheless added 1.1% to hover near $8.84. Taking a step back, it's been a miserable year for the shares, which have shed approximately two-thirds of their value in 2014. Not surprisingly, the majority of covering analysts are pessimistic toward Cliffs Natural Resources Inc, with 11 out of 13 firms sporting a "hold" or worse rating. On the fundamental front, the company will report third-quarter earnings one week from today's close.

  • NUS has tacked on 1.1% to trade at $44.09, after receiving a "buy" initiation and $75 price target from Pivotal Research. Such optimism is rare for the stock, which is down roughly 68% on a year-to-date basis. For example, 10.3% of Nu Skin Enterprises, Inc.'s float is sold short, as short interest expanded 31.7% during the two most recent reporting periods. What's more, the security's 50-day ISE/CBOE/PHLX put/call volume ratio of 2.72 ranks in the bearishly skewed 85th percentile of its annual range.

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Stocks On the Move: NewLink Genetics Corp, Sears Holdings Corp, and Chipotle Mexican Grill, Inc.

NLNK, SHLD, and CMG are moving sharply in Monday's trading

by 10/20/2014 11:39 AM
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U.S. stocks are trading on both sides of breakeven this morning, with the Nasdaq Composite (COMP) in the black and the blue-chip barometer in the red, due to an earnings miss from Big Blue. Among the names making significant moves are Ebola vaccine maker NewLink Genetics Corp (NASDAQ:NLNK), department store operator Sears Holdings Corp (NASDAQ:SHLD), and fast-casual restaurateur Chipotle Mexican Grill, Inc. (NYSE:CMG). Here's a quick look at how NLNK, SHLD, and CMG are faring on the charts today.

  • NLNK is 19.4% higher at $35.05, after the firm announced a potentially lucrative agreement with Roche Holding AG to develop NLNK's cancer therapy. The stock has now added 59% so far in 2014, and today's rally could have quite a few bears hitting the exits. Short interest edged 9.3% higher during the past two reporting periods, and now accounts for 30.4% of NewLink Genetics Corp's total available float. In fact, it would take more than 16 sessions to repurchase these pessimistic positions, at the equity's average pace of trading -- ample fuel for a short-covering rally. Of course, considering the affinity for long calls of late, some of those shorts may be hedged.

  • SHLD is up 7.4% at $30.51, thanks to plans to boost liquidity with help from CEO Eddie Lampert. Nevertheless, SHLD remains more than 22% lower year-to-date, and has underperformed the broader S&P 500 Index (SPX) by more than 23 percentage points during the past three months. As such, it's no surprise to find optimism toward Sears Holdings Corp is relatively sparse. Short interest accounts for almost 35% of the security's total available float, and option buyers on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been upping the bearish ante. In fact, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.43 stands higher than 77% of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls during the past two weeks.

  • CMG is flirting with a 1.5% gain at $651.50, as buyers step in ahead of the firm's quarterly earnings release tonight. Intraday options volume is running at twice the normal pace, and the stock's 30-day at-the-money implied volatility is 1.1% higher at 40.6%, reflecting a growing demand for short-term options ahead of earnings. Echoing that, eight of the 10 most active options expire at Friday's closing bell, with last-minute positions being established at the deep out-of-the-money weekly 10/24 500-strike put and 700-strike call. Technically speaking, Chipotle Mexican Grill, Inc. has tacked on more than 22% in 2014, and major post-earnings reactions aren't outside the realm of possibility; the shares gapped 11.8% higher after the company's last go-round in the earnings spotlight in July.

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