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Jefferies Group Gains on Solid Quarterly Showing

JEF's first-quarter earnings handily topped the consensus view

by 3/20/2012 11:10:27 AM
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Before the opening bell this morning, Jefferies Group, Inc. (JEF - 19.70) stepped into the earnings spotlight and revealed its fiscal first-quarter report. JEF said its profit decreased 12% to $77.1 million, or 33 cents per share, from last year's profit of $87.3 million, or 42 cents per share. On the other hand, revenue edged up 2.2% to $758.1 million. The results easily bested Wall Street's projections for a bottom line of 29 cents per share on $699 million in revenue. The New York City-based firm also announced it will pay a quarterly dividend of 7.5 cents per share.

Traders appear to be pleased by this stronger-than-expected showing, and have lifted JEF shares up roughly 3% at last check, adding to their 38.6% year-to-date gain. On a relative-strength basis, the stock has outpaced the broader S&P 500 Index (SPX) by 19% over the past month. JEF's uptick could be limited, though, as the round-number $20 level looms above. This area previously served as support, but could now switch roles to act as resistance.


Ahead of earnings, there was an overwhelming preference for calls on JEF, as evidenced by the stock's 10-day call/put volume ratio of 18.41 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is in the 97th percentile of its annual range, signaling that traders on these exchanges have seldom purchased bullish bets over bearish at a faster pace during the past year.

However, short sellers could be accountable for some of the call buying of late, picking up optimistic options to hedge their pessimistic positions. Short interest rose 1.3% during the most recent reporting period, and now makes up 6.6% of the equity's available float.

Mirroring this negativity, analysts are bearishly biased toward JEF. Zacks is reporting that five out of six brokerages have doled out a "hold" or worse rating for the stock. Meanwhile, Thomson Reuters places the average 12-month price target at $17.17, which represents a discount to today's intraday peak of $19.80.

Given JEF's well-received results and solid technical performance, a fresh bout of upgrades and/or price-target hikes, or a short-squeeze situation, could help to boost the investment banking issue through potential round-number resistance.


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