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MetroPCS Communications Hit by Skeptical Speculation

Put options are popular as PCS prepares to report earnings

by 10/22/2012 10:47 AM
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Puts have emerged as the options of choice on wireless stock MetroPCS Communications, Inc. (NYSE:PCS - 11.01), according to volume data from the major exchanges. During the past five sessions, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 14,528 puts and 8,525 calls on PCS, resulting in a put/call volume ratio of 1.70.

Meanwhile, short sellers have also been raising the bearish stakes. Short interest on PCS jumped by more than 76% during the most recent reporting period, and is now resting at a fresh one-year high.

Elsewhere, brokerage firms are also downbeat on the prospects for PCS. Among the 20 analysts tracking the stock, only four consider it worthy of a "buy," with the majority split between the "hold" and "sell" camps.

Given the widespread negativity levied against PCS, it's interesting to note the stock is up more than 26% year-to-date. The shares have pulled back from their Oct. 2 annual high of $14.51, but PCS is testing support in the $11 area -- home to its ascending 10-week moving average.

Weekly Chart of PCS since May 2012 With 10-Week Moving Average

The wireless sector has been in the spotlight lately, thanks to a planned merger between PCS and T-Mobile -- as well as Softbank's historic investment in Sprint Nextel (NYSE:S). In fact, some investors are still holding out hope that Sprint may launch a counterbid to scoop up PCS before the T-Mobile deal goes through.

Meanwhile, PCS is likely to generate some fresh headlines of its own next week, as the company is due to unveil its third-quarter earnings before the opening bell on Tuesday, Oct. 30. Analysts are looking for a profit of 26 cents per share, up from last year's earnings of 19 cents per share. PCS has a spotty track record on the earnings front; in the past four quarters, the company has topped bottom-line estimates twice, and fallen short on two other occasions.


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