Schaeffer's Trading Floor Blog

Analyst Downgrades: Noodles & Co, SeaWorld Entertainment Inc, and General Motors Company

Analysts issued bearish notes on NDLS, SEAS, and GM

by 8/14/2014 9:22 AM
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Analysts are downwardly revising their ratings today on fast-casual restaurant chain Noodles & Co (NASDAQ:NDLS), theme park operator SeaWorld Entertainment Inc (NYSE:SEAS), and auto giant General Motors Company (NYSE:GM). Here's a quick look at today's bearish brokerage notes on NDLS, SEAS, and GM.

  • In the wake of a lackluster earnings report and a downward revision to its full-year guidance, NDLS has been pummeled with some steep price-target cuts. Piper Jaffray lowered its target to $22 from $38, Jefferies trimmed its forecast to $22 from $35, Wedbush reduced its target to $21 from $30, and Baird issued a cut to $26 from $46. Shares of Noodles & Co settled Wednesday at $25.21, but they've shed more than 20% in pre-market action to linger at $20. With the stock down nearly 30% year-to-date ahead of last night's news, bearish sentiment toward NDLS was already running high. Short interest represents 16% of the equity's float, and 80% of brokerage firms have handed out a tepid "hold" rating.

  • SEAS plummeted nearly 33% Wednesday to close at $18.90 -- after hitting an all-time low of $18.17 earlier in the session -- as traders panned the company's gloomy financial forecast. Today, the stock is getting hammered with downgrades. So far, Wells Fargo cut SEAS to "market perform" from "outperform," Bank of America-Merrill Lynch slashed its opinion to "neutral" from "buy," and Macquarie dropped its recommendation to "neutral" from "outperform." However, following yesterday's drastic sell-off, SeaWorld Entertainment Inc shares have edged up 0.8% ahead of the bell. Meanwhile, with the stock's average 12-month price target still resting at an ambitious $38.30, SEAS could be due for some price-target cuts in the weeks ahead.

  • Credit Suisse started coverage of GM with an "underperform" rating and a $33 price target, with the firm predicting a modest decline from the stock's close at $33.95 on Wednesday. General Motors Company is down roughly 17% year-to-date, and the shares have slipped an additional 0.9% in electronic trading. Despite the uninspiring price action in GM, most analysts remain upbeat. Currently, the automaker boasts nine "buy" or better ratings, compared to four "holds" and one "strong sell." Going forward, more negative notes like today's could weigh heavily on GM.

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Buzz Stocks: QUALCOMM, Inc., Cisco Systems, Inc., China Mobile Ltd. (ADR), and Burger King Worldwide Inc

Today's stocks to watch in the news include QCOM, CSCO, CHL, and BKW

by 8/14/2014 9:21 AM
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Positive developments in the contentious relationship between Russia and Ukraine have U.S. equities sitting in the green ahead of the bell. In company news, here are some stocks to watch today:

  • Amid an antitrust investigation by regulators in China, QUALCOMM, Inc. (NASDAQ:QCOM) has been accused of bribing a government-contracted consultant to gain support. While that individual has been dismissed, a QCOM spokesperson denied her company ever paid the investigator "huge rewards" -- as alleged by the Chinese government -- and had no direct financial dealings with the antitrust expert. (Reuters)

  • While Cisco Systems, Inc. (NASDAQ:CSCO) announced better-than-expected fiscal fourth-quarter results last night, the firm also announced it will cut 6,000 positions, equivalent to roughly 8% of its workforce. (CNBC)

  • After Chinese officials directed wireless carriers to reduce their marketing costs, China Mobile Ltd. (ADR) (NYSE:CHL) announced it will slash its subsidy budget for mobile devices by $2 billion. That's roughly 38% less than what CHL had planned to spend. (Bloomberg)

  • Another day, another menu change at Burger King Worldwide Inc (NYSE:BKW). Days after adding Chicken Fries back to its menu -- albeit on a limited-time-only basis -- BKW is phasing out its lower-fat Satisfries at two-thirds of its locations. (Bloomberg)

  • Finally, retailers Wal-Mart Stores, Inc. (NYSE:WMT) and Kohl's Corporation (NYSE:KSS) reported quarterly earnings. (Reuters, via CNBC; MarketWatch)

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Analyst Upgrades: Tesla Motors Inc (TSLA), NetApp Inc., and GT Advanced Technologies Inc

Analysts issued bullish notes on TSLA, NTAP, and GTAT

by 8/14/2014 9:04 AM
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Analysts are upwardly revising their ratings today on electric automaker Tesla Motors Inc (NASDAQ:TSLA), data storage provider NetApp Inc. (NASDAQ:NTAP), and alternative energy name GT Advanced Technologies Inc (NASDAQ:GTAT). Here's a quick look at today's bullish brokerage notes on TSLA, NTAP, and GTAT.

  • With the stock rallying into record-high territory this week, TSLA continues to attract bullish brokerage attention. Today's note comes courtesy of Credit Suisse, which started coverage of Tesla Motors Inc with an "outperform" rating and a $325 price target. In other words, the brokerage firm is banking on upside of roughly 25% from Wednesday's close at $260.31. As the security continues to climb the charts, shorts could be forced to abandon their losing bets. Currently, a steep 26.6% of TSLA's float is sold short.

  • On the heels of last night's fiscal first-quarter earnings report, NTAP has racked up no fewer than nine price-target hikes, along with a Needham upgrade to "buy" from "hold." Shares of NetApp Inc. are 2.5% higher in pre-market action, after closing Wednesday at $39.30. Most analysts maintain a skeptical view of the tech stock, as only 24% of the brokerage firms tracking NTAP have deemed it worthy of a "buy" rating.

  • Cowen and Company started coverage of GTAT with an "outperform" rating and a $19 price target, implying expected upside of 14.5% from Wednesday's close at $16.59. GT Advanced Technologies Inc has rallied 90.3% so far in 2014, yet skepticism toward the stock is nearly palpable. Short interest accounts for a hefty 35.5% of GTAT's float, and the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.99 registers in the bearishly skewed 75th annual percentile. Traders may be wary of the looming $18-$20 area, which has rejected the equity's rally attempts since mid-March.

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Finding the Smart Money in VIX Futures

How you could've timed the CBOE Volatility Index (VIX) just right -- and still botched a trade

by 8/14/2014 8:03 AM
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We haven't looked at CBOE Volatility Index (VIX) futures much lately -- maybe thanks to the fact that VIX itself has moved around a bit more than normal. But alas, all good things must come to an end. We're back with a 13 full, which is pretty much the new normal, or at least the normal of this low-volatility regime we sit in.

So, how about we take a gander at what "seers" expect to see in VIX down the road.

VIX Futures Term Structure

Well, if it seems like the term structure never changes, that's because it truly never changes. We just had a little blip up in volatility, but it didn't alter expectations all that much.

It's pretty safe to assume every random six-month period will see some sort of VIX pop. A VIX futures buyer needs a more permanent lift to truly benefit. Or he needs very prescient timing but you can say that about any play.

Almost exactly six months ago, VIX itself sat in the high 13s after a more impressive pop than the one we just saw. How did the term structure look then?

VIX Futures Historical Prices - Feb 2014 vs Today

That's pretty impressive. There was slightly more "optimism" in the middle part of the curve; otherwise, they're essentially identical. And of course, buyers of VIX paper of three-to-four months' duration in February did pretty poorly. VIX itself mostly drifted, before bottoming near 10 on July 3.

As luck would have it, VIX was in the mid 13s almost exactly a year ago, although this time it was in the middle of a modest rally. So, let's overlay that term structure next.

VIX Futures Historical Prices - Feb 2014, Today, Aug 2013

We were so young and innocent back then, apparently. VIX was surely grinding its way back to 20 by March/April 2014.

Except it didn't. VIX averaged about 14 in that stretch. So much for those crystal balls! It did pop over 20 in February, though. So, if you owned March or April futures and held on, you had an out, right?

Well, wrong again.

Here's how the term structure looked on Feb. 3, which hindsight tells us was the peak in "spot" VIX.

VIX Futures Historical Prices Feb 2014

Those futures were about 18.5. So, you could have come reasonably close to timing a VIX pop, and STILL done quite poorly.

Who's the smart money? Whoever sold the longer-dated VIX futures in early February at a decent discount to cash. Those 210- and 240-day VIX futures are September and October paper, and as you can see from the first chart up above, they're in the 15 range now.

The larger point in all this is that the next time you hear about surging VIX futures or call volume, take it with a grain of salt. It's quite possibly on the wrong side of the market, but most likely, it's just guessing an outcome that will bear about zero correlation to the ultimate reality.

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

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Options Check-Up: ARM Holdings plc (ADR), First Solar, Inc., and Akamai Technologies, Inc.

Analyzing recent option activity on ARMH, FSLR, and AKAM

by 8/14/2014 7:30 AM
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Among stocks attracting attention from options traders lately are chip maker ARM Holdings plc (ADR) (NASDAQ:ARMH), alternative energy issue First Solar, Inc. (NASDAQ:FSLR), and cloud concern Akamai Technologies, Inc. (NASDAQ:AKAM). Below, we'll break down how option buyers are positioning themselves, and how much speculators are willing to pay for their bets on ARMH, FSLR, and AKAM.

  • ARMH finished Tuesday's session 0.8% lower at $44.97 -- a day after Societe Generale warned Intel Corporation's (NASDAQ:INTC) new chip could create some headwinds for its sector peer. Year-to-date, shares of ARM Holdings plc (ADR) have shed 18%, yet sentiment among option traders is tilted toward the bullish side. Over the past 10 sessions, the stock has racked up a call/put volume ratio of 8.30 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 88th percentile of its annual range. Simply stated, calls have been bought to open over puts with more rapidity just 12% of the time within the past year. At present, short-term ARMH options are pricing in low volatility expectations, per the security's Schaeffer's Volatility Index (SVI) of 32%, which ranks lower than 73% of similar readings taken in the past year.

  • A handful of bounces off its 140-day moving average have helped FSLR add more than 27% this year; however, the equity is now staring up at familiar resistance in the $70 region -- home to a heavy accumulation of call open interest in the front-month series of options. On Tuesday, the shares closed just shy of this overhead mark at $69.50. While analysts have recently taken note of this uptrend, put buying at the ISE, CBOE, and PHLX has reached peak levels. Specifically, FSLR's 10-day put/call volume ratio of 0.86 rests higher than all other readings taken in the last 12 months. Given the equity's year-to-date gains, a portion of this activity could be a result of shareholders protecting against a pullback. Regardless, First Solar, Inc.'s short-term options can currently be had on the cheap -- the security's SVI of 39% ranks in just the 10th percentile of its annual range.

  • Option traders have been eyeing more upside for AKAM, which has tacked on nearly 29% from its Feb. 3 year-to-date low of $45.59 to trade at $58.70. During the course of the past 10 weeks, the equity has racked up a call/put volume ratio of 3.38 on the ISE, CBOE, and PHLX. What's more, this ratio ranks just 8 percentage points from a 52-week peak, pointing to a distinct bullish bias in AKAM's options pits in recent months. Now appears to be an opportune time to place short-term bets on Akamai Technologies, Inc. at a relative bargain, as evidenced by the equity's SVI of 27% -- in the 16th annual percentile.

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