Ahead of the open yesterday, Kraft Foods (KFT: sentiment, chart, options) matched analysts' fourth-quarter earnings expectations, but lowered its 2009 earnings forecast to $1.88 per share from $2 per share due to a less advantageous currency translation and higher pension costs. Following the report, S&P Equity Research cut its price target on the stock to $32 per share from $35 per share. KFT plunged more than 9% on the session.
It seems that the rest of the brokerage community is weighing in today. Specifically, Barclays cut its price target to $28 per share from $32, UBS slashed its target to $30 from $33, Credit Suisse lowered its target to $28 from $33, and Deutsche Bank cut KFT to $30 per share from $32. According to Thomson Financial, the current average 12-month price target for KFT rests at $33.64 per share - a 28% premium to the stock's Wednesday close of $26.11.
Surprisingly, none of the analysts slashing their targets on the shares bothered to downgrade their ratings on the stock. KFT sports 6 "buys," 10 "holds," and no "sells," according to Zacks, leaving plenty for room for brokerage firms to lower their opinions in the future.
Technically Speaking
Prior to yesterday's earnings snafu, KFT was actually in a strong technical uptrend along the support of its 10-day and 20-day moving averages. However, weakness was beginning to take hold, as the shares were in the process of pulling back from a rejection at the round-number 30 level. Today, KFT is desperately clinging to long-term support in the 26 region. This area has held as support for the security (barring closes on Nov. 20 and Dec. 1) since early October, and a breach of this support could send KFT down for a retest of its mid-November lows below $25 per share.
On the sentiment front, investors remain quite complacent toward KFT. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.97 ranks in the 64th percentile of its annual range, indicating that options traders don't have a strong preference for either calls or puts. The stock's International Securities Exchange and Chicago Board Options Exchange 10-day call/put volume ratio of 1.27 hints at a preference for purchased calls over purchased puts among some options traders, but this ratio also ranks in the middle of its annual range, revealing no solid preference for a rally or a decline in KFT shares.
Meanwhile, short sellers have largely ignored the equity. Following a 15.5% decline in the number of KFT shares sold short during the most recent reporting period, only a mere 27.8 million shares remain shorted. At the stock's average daily trading volume, it would take less than 3 days to repurchase these bearish bets; hardly enough fuel for short-covering support, let alone a rally.
In conclusion, KFT traders should keep a close eye on support/resistance at the 26 level. Should the shares close the week below this region, it could be a sign that selling pressure has yet to fully unwind. On the other hand, if KFT can hold support at the 26 level, we could see the stock consolidate its recent losses in a sideways trend below potential resistance in the 26.50-27 area during the next couple of weeks.
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