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Weyerhaeuser Steps Up to the Earnings Plate

Short-term options players believe WY's positive price action will continue in spite of earnings

by 10/28/2011 11:30:27 AM
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Weyerhaeuser Company (WY - 17.65) took its turn in the earnings confessional bright and early this morning. The timber titan reported a third-quarter profit of $157 million, or 29 cents per share, down significantly from its year-ago profit of $1.12 billion, or $3.50 per share. On an adjusted basis, earnings arrived at $66 million, or 12 cents per share. Revenue, meanwhile, jumped 3.6% to $1.57 billion. Analysts, on average, were expecting earnings of 12 cents per share on revenue of $1.68 billion.

After missing its second-quarter earnings mark, WY experienced a pretty significant decline. Shares of the stock are down slightly over 5% year-to-date. From a shorter-term standpoint, the equity has experienced a nice uptick after touching an annual low of $14.82 on Oct. 4. What's more, the security finished above its 80-day moving average after yesterday's close -- an area not visited since July 22 -- and is attempting to maintain that perch today.

Daily price chart of WY since July 2011

As a result of WY's upward stock movement, pessimistic players appear to be cashing in their bearish bets. Short interest has decreased by 11% over the course of the last month, and now stands at a low 4% of the stock's available float.

In addition, from a short-term perspective, speculators appear to be all aboard the bullish bandwagon. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.40. This ratio ranks in the 4th percentile of its annual range, indicating near-term traders have rarely been more optimistic via options set to expire within the next three months.

Option activity was heavy as a whole on WY during the course of Thursday's session, with calls and puts trading at seven times and five times the average daily volume, respectively. In the front-month series, traders were particularly enamored with the November 18 put. Over 1,200 contracts were traded on this strike, and open interest increased overnight. Plus, most of the puts crossed at the ask price, indicating buy-to-open activity.

WY has been the recipient of some bearish analyst attention. Zacks reports the stock maintains only three "strong buy" recommendations, compared to 10 "hold" or worse recommendations. What's more, Thomson Reuters pegs the average 12-month price target at $19.85, a slim 11% premium to yesterday's close of $17.94. From a contrarian perspective, WY could be positioned to push above the $18 mark if analysts choose to upgrade the stock or increase the equity's 12-month price target, rendering the November 18 puts worthless.

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