The Early Edge: Advance Auto Parts, Beazer Homes, Mentor, and Stanley Works

              

Today's headlines include earnings from Advance Auto Parts (AAP), Beazer Homes (BZH), and Mentor (MNT), along with Stanley Works (SWK) agreeing to an acquisition. Here is what you need to know about this morning's news.

Advance Auto Parts

Auto-parts retailer Advance Auto Parts (AAP: sentiment, chart, options) reported first-quarter net income of 86 cents per share. The retailer's sales increased to $1.53 billion. Expectations called for earnings of 78 cents per share on revenue of $1.51 billion. The company also announced that its board authorized the repurchase of $250 million of the company's available shares.

Shares of the retailer are set to open the morning considerably higher thanks to the earnings news. While the gap higher is positive, the current stock price indicates that it will be battling resistance at the 38 level throughout the trading day. The last time the stock finished a week north of this level was at the end of December 2007. We could see pessimism in the option pits unwind toward AAP, as the firm's Schaeffer's put/call open interest ratio (SOIR) of 1.74 is higher than 87% of the past year's worth of readings. Should this sentiment unwind in the form of buying pressure, the stock may have a chance to top the 38 level.

Beazer Homes

Homebuilder Beazer Homes (BZH: sentiment, chart, options) announced that it saw losses widen during its first and second quarters. Late yesterday, BZH released its delayed financial results for said quarters, and showed a first-quarter loss of $3.59 per share. This loss grew to $5.96 per share during BZH's second quarter. For the first 6 months of the fiscal year, BZH lost $9.55 per share compared to $3.57 per share a year earlier. The homebuilder noted that it has pending asset sales with estimated net cash proceeds in excess of $100 million, which are expected to close over the next 120 days. BZH noted that the cumulative impact of its restatement for periods in the years 1998 to 2006 resulted in a $27.6-million increase in retained earnings. BZH's earnings errors were attributed to inappropriate accumulation of reserves or accrued liabilities associated with land development and house costs.

BZH is set to open the morning lower, which is simply a continuation of the stock's 52-week downtrend. During this time, the equity has shed 71.5% of its worth. While the shares have topped their 10-month moving average, today's gap lower should eliminate this potential layer of support. Since March 2006, the equity has closed above this trendline just twice. Watch for an unwinding of optimism from option players, as BZH's SOIR of 1.26 is lower than 79% of those taken during the past 52 weeks.

Mentor

Cosmetic surgery-product manufacturer Mentor (MNT: sentiment, chart, options) took its turn in the earnings spotlight, posting fourth-quarter earnings. Quarterly earnings dropped to 53 cents per share from 54 cents per share a year earlier. Earnings from continuing operations totaled 30 cents per share, which matched the consensus estimate. Quarterly revenue increased 24% to $99.4 million, topping expectations for $93.8 million. The stronger-than-expected revenue was attributed to conversion of the company's saline implants to Memory Gel.

MNT is set to open the morning nearly $2 lower thanks to the earnings news. The lower open will give the equity's 20-week moving average a chance to further its role as resistance. In conjunction with its 10-week counterpart, this trendline has pushed the shares lower since the middle of October 2007. As for sentiment, we could see option speculators force a bit of selling pressure, as MNT's SOIR of 0.65 is lower than 69% of those taken during the past 52 weeks.

Stanley Works

Late yesterday, VeriChip Corp. announced that it agreed to sell its Canadian subsidiary, Xmark, to Stanley Works (SWK: sentiment, chart, options) . Xmark markets and sells RFID-based systems used to identify, locate, and protect both people and assets. The acquisition is expected to be complete during the third quarter, or early in the fourth quarter, following an affirmative vote by a majority of VeriChip's stockholders. The impact to SWK's earnings and cash flows in 2008 is expected to be minimal. SWK will put Xmark to operation as part of its Stanley Works' Security segment.

SWK is set to open the morning lower, and it will lose the support of its 10-week moving average in the process. The shares should maintain support from their 20-week trendline. In addition, the 50 level lurks overhead to act as resistance, as it has since the end of March. Pessimism runs at near-extreme levels from option speculators toward SWK, evidenced by the firm's SOIR of 1.19, which is higher than 93% of those taken during the past 52 weeks. While this configuration leaves a chance for unwinding pessimism, downgrades could push the shares lower. Four of the 6 analysts following SWK rate it a "buy" or better, which leaves the door wide open for downgrades.

For more commentary on today's market-moving news from me and my colleagues Andrea, Jocelynn, Elizabeth, Colleen, and Joseph, please visit our Schaeffer's Daily Market Blog section throughout the trading day.