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Options Edge: M&T Bank Corp., Human Genome Sciences, Baidu, Inc., and SunPower Corp.

The drug company is soaring ahead of the bell on positive trial results

by 7/20/2009 9:22:07 AM
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Today's column includes the latest quarterly results from M&T Bank Corporation (MTB), blockbuster trial results from Human Genome Sciences (HGSI), mixed brokerage notes on Baidu, Inc. (BIDU), and a price-target cut for SunPower Corporation (SPWRA). Each day, Options Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.

M&T Bank Corporation

M&T Bank Corporation (MTB: View sentiment for MTBsentiment, chart, options) reported a 75% plunge in second-quarter net income, as the bank's acquisition of Provident Bankshares eroded its bottom-line results. MTB raked in $40.5 million, or 36 cents per share; excluding items, earnings would have checked in at 79 cents per share. In addition to the acquisition charges, MTB's income was also impacted by a special payment into the Federal Deposit Insurance Corp.'s (FDIC) deposit insurance fund.

MTB price chartThe ex-items results topped analysts' consensus expectations, which called for a profit of just 47 cents per share. However, the report wasn't exactly stellar -- MTB's net charge-offs climbed sequentially from 0.83% of total loans to 1.09%, while nonperforming loans escalated to 2.11% from 2.05% in the first quarter.

In pre-market trading, MTB has added 4.2%. The stock may struggle to break out from its long-term slide beneath technical resistance at its 10-month and 20-month moving averages, which have guided the shares lower since March 2007.

MTB's early losses should satisfy bearish option speculators. In the newly front-month August series, the 45-strike put is the most popular option. This out-of-the-money put carries peak front-month open interest of 6,147 contracts.

Human Genome Sciences

Human Genome Sciences (HGSI: View sentiment for HGSIsentiment, chart, options) is racking up bullish analyst notes ahead of the open after the firm reported unexpectedly successful results from the late-stage trials of its lupus drug. Subjects who took Benlysta "achieved a clinically and statistically significant improvement in patient response rate" compared to those who took a placebo.

On the heels of this news, Lazard upgraded HGSI from "sell" to "hold," while Citigroup upped the equity from "hold" to "buy." Ahead of the open, shares of the drug company are up 245% to trade above $11.

Option activity ramped up on HGSI last Friday in anticipation of the Benlysta news. The day's speculation appeared to have a mildly bearish bias, with the stock trading 2.8 times its average daily put volume, compared to 2.47 times its average daily call activity.

Baidu, Inc.

Baidu, Inc. (BIDU: View sentiment for BIDUsentiment, chart, options) snagged a price-target boost this morning, with RBC Capital hiking its price target on the shares from $260 to $331. The new estimate represents a premium of just 3% to the equity's closing price last Friday. Despite its very modest growth expectations during the next year, RBC reiterated its "outperform" rating on BIDU.

However, this reasonably upbeat note is being offset by a downgrade from Credit Suisse, which cut BIDU this morning from "neutral" to "underperform." The brokerage firm simultaneously raised its own price target on the stock from $200 to $250.

BIDU has backpedaled nearly 1% ahead of the bell, with the security giving back some of its recent gains. The stock recently surged above short-term resistance in the $310 neighborhood, leaving support from its 10-week moving average as far south as the $283 region.

In light of the shares' impressive 146% gain in 2009, some option traders are trying to call a top to BIDU's ascent. The equity's Schaeffer's put/call open interest ratio (SOIR) checked in today at 1.13, just 11 percentage points from an annual pessimistic peak.

SunPower Corporation

SunPower Corporation (SPWRA: View sentiment for SPWRAsentiment, chart, options)

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