Jocelynn Drake (jdrake@sir-inc.com)
8/30/2006 12:15:00 PM
A daily feature available on SchaeffersResearch.com is "Upon Further Review." Every day, we'll focus on the day's action of newsworthy stocks that are generating a lot of attention. By digging into the stock's sentiment and technical backdrop, we hope to shed some light on the securities. Appearing in today's "Upon Further Review" are Emulex, Hovnanian Enterprises, JetBlue Airways, and Micro Systems.
Emulex: Last night, Emulex
(ELX:
sentiment,
chart,
options)
announced that it has signed a deal to acquire Sierra Logic for $180 million cash, assumed debt and stock options, and employee equity incentive compensation. ELX reported that the deal will add $8 million to $10 million in revenue in the second quarter, but will have no effect on per-share earnings. The firm expects to complete the transaction on or around September 30. Both investors and the Street have been supportive of the deal, as the shares of ELX have surprisingly rallied today. The shares have gained more than six percent this morning. However, the stock's rally started prior to today. Since tagging a near-term low on July 21, the equity has been grinding higher along its 10-day and 20-day moving averages. What's more, investors have been growing more optimistic toward the shares. The stock's Schaeffer's put/call open interest ratio (SOIR) appears to have put in a near-term high and is rolling over. The stock could see additional upside as more bears leave the sidelines and jump on the equity's bandwagon.
Hovnanian Enterprises: Wall Street is slowly capitulating when it comes to the housing sector. Hovnanian Enterprises
(HOV:
sentiment,
chart,
options)
was downgraded this morning from "overweight" to "neutral weight" by J.P. Morgan, citing concerns over valuation and expectations of below-average earning-per-share growth. The stock has been in an ugly downtrend since hitting a high in July 2005. The shares have declined under pressure from their 10-week and 20-week moving averages, shedding a painful 64 percent. Furthermore, Yahoo! Finance reports that four analysts still give the shares a "buy," four award it a "hold," and only one rates it a "sell." There's still ample room for additional downgrades from this group.
JetBlue Airways: Another company slapped with a downgrade was JetBlue Airways
(JBLU:
sentiment,
chart,
options). Before the open, Prudential Equity Group trimmed its rating on the company from "overweight" to "neutral." Technically speaking, the equity has been trapped in a narrow little range recently between support at 10 and resistance at 10.50. The shares have been ushered lower by their 10-day and 20-day moving averages since the end of June. Meanwhile, the 10 area has been a key region of support for the shares. Furthermore, the 10 strike is the site of peak put open interest in the September series, with more than 18,200 contracts in residence. If the shares can finally bounce off support and take out their short-term trendlines, it appears to have clear skies until 12.50, which is the site of the stock's 20-month trendline.
Micro Systems: After the close last night, Micros Systems
(MCRS:
sentiment,
chart,
options)
announced fourth-quarter earnings of $21.4 million, or 53 cents per share. Excluding items, earnings would have come in at 58 cents per share, beating the Street estimate of 51 cents. Quarterly revenue rose 12 percent to $191.8 million, while analysts forecast revenue of $185 million. The company also released a positive outlook for the rest of the year. Heading into the report, investors have grown skeptical of the shares. The stock's SOIR had risen from 0.38 on August 24 to today's reading of 0.63, as puts were added at a faster pace than calls among near-term options. Furthermore, short interest is hovering near an annual high, resulting in a short-interest ratio of 8.3 days to cover. This combination of low expectations and a positive earnings report left that shares primed for a solid rally, which is what traders have today. The security gapped higher on the open and continues to sit on a gain of more than 20 percent for the session.
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