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Shutterfly's Revised Top-Line Guidance Sounds Alarms for Bulls

Baird and Janney both weighed bearishly on SFLY

by 12/23/2011 2:30:44 PM
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Early this morning, Shutterfly, Inc. (SFLY - 22.97) lowered its forecast for its fourth quarter. The Redwood City, Calif.-based company believes its current- quarter revenue will now range from $259 million to $264 million, compared with its previous guidance of $270.5 million to $275.5 million. This newly adjusted outlook arrives below analysts' view for revenue of $267.8 million.

Following this news, two brokerages weighed in on SFLY: While Baird cut its price target by $6 to $44, Janney dropped its fair value for the stock to $34 from $39.

There could be additional target reductions in store for SFLY. According to Thomson Reuters, the consensus 12-month price target rests at $49.64, which represents a whopping 118% premium to today's intraday low of $22.55. Meanwhile, SFLY could also be prone to downgrades, as Zacks reports that 85% of analysts maintain a "strong buy" on the downtrending stock.

Options traders also appear to be optimistic toward SFLY. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 1.39 calls for every put. Yet, this ratio arrives in the 63rd percentile of its annual range, signaling that the current preference for calls is simply business as usual for SFLY.

However, short sellers could be responsible for some of the call buying of late, picking up optimistic options to hedge their pessimistic positions. Short interest on the equity jumped 13.2% during past month, and now makes up 21.5% of the equity's available float.

SFLY has been quite the underachiever on the charts, lagging the broader S&P 500 Index (SPX) by nearly 44% during the past three months. From a longer-term perspective, the shares have fallen more than 28.5% year-to-date. Thanks to today's poor guidance, the security has backpedaled more than 8.5%, and is faltering below the $25 mark. At this pace, SFLY is in danger of tallying its first monthly close below this level since August 2010.


Considering the technical and fundamental problems stacking up against SFLY, any shift toward the bearish camp could only make matters worse for the online personal publishing service.


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