Earnings Preview: Priceline Group Inc (PCLN) and Tripadvisor Inc (TRIP)

Travel concerns Priceline Group Inc (PCLN) and Tripadvisor Inc (TRIP) are preparing to report first-quarter earnings on Wednesday

May 3, 2016 at 11:30 AM
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Now well into earnings season, traders today are eyeing results from blue-chip Pfizer Inc. (NYSE:PFE) and looking ahead to tomorrow's report from Tesla Motors Inc (NASDAQ:TSLA). But below we'll take the pre-earnings temperature of two more companies on Wednesday's docket: travel stocks Priceline Group Inc (NASDAQ:PCLN) and Tripadvisor Inc (NASDAQ:TRIP).

PCLN is down 0.9% at $1,344.18 today, but holds a 5.4% year-to-date lead, thanks to a huge post-earnings bull gap in February. The shares have recently found support at their 200-day moving average, but have struggled at the $1,360-$1,400 level on numerous occasions since March 2014. The company -- which just underwent a scandalous management shake-up -- will report before the open tomorrow.

Analysts are equally split on the equity, but options traders appear to have grown optimistic of late. Specifically, the stock holds a 10-day call/put volume ratio of 1.35 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- higher than 80% of all readings in the past year. 

According to near-term at-the-money (ATM) straddle data, the options market is pricing in a 10.7% one-session post-earnings swing, compared to an average move of 6.4% over the past eight quarters. And it appears at least some traders are betting on a move to the upside, as some buy-to-open action seem to be happening on PCLN's weekly 5/13 1,350-strike call.

Notably, the security's options volume surged to annual highs after Priceline Group Inc (NASDAQ:PCLN) reported earnings one year ago. This time, however, open interest is quite low -- in the 5th percentile of its annual range.

TRIP has given up nearly a quarter of its value in 2016, and has spent the last couple of months chopping around in the $61-to-$67.50 region, down 1% at $64.27 today. From a longer-term perspective, TRIP has hit a series of lower highs and lows since its June 2014 peak. The company is slated to unveil first-quarter figures after tomorrow's close.

TRIP hit a near two-year low after its last earnings report in mid-February, as brokerage firms quickly moved to cut their outlooks. In fact, TRIP has moved to the downside in the session after earnings for the past three quarters in a row. Today, TRIP's near-term ATM straddle is pricing in a hefty 15.9% swing -- significantly larger than the equity's average single-session move of 8.7% after its past eight earnings reports.

Taking a step back, analysts have been pessimistic, with 18 of the 21 brokerages providing coverage giving TRIP a "hold" or worse recommendation. Short interest is also elevated, representing 12.4% of the security's available float, or more than eight sessions' worth of trading, at TRIP's average daily pace.

But in the options pits, long calls have been dominating -- perhaps as traders hope for a buyout bid. In fact, traders have bought to open more than three TRIP calls for each put over the last 10 sessions on the ISE, CBOE, and PHLX. The resulting call/put volume ratio of 3.15 sits higher than 72% of the past year's readings.

But that doesn't mean traders are entirely optimistic. This penchant for long calls could be the result of short sellers hedging their bets against upside risk. Adding evidence to this possibility is the fact that peak call open interest resides at the out-of-the-money May 70 call, where it looks like a large majority of positions were purchased to open. In fact, call open interest on Tripadvisor Inc (NASDAQ:TRIP) is now parked at the top of its annual range.


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