Mosaic Stock Could Surge on Earnings Tomorrow

An earnings beat tomorrow could lead to outsized gains in Mosaic shares

Feb 6, 2017 at 10:58 AM
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Mosaic Co (NYSE:MOS) will report earnings tomorrow morning. The options market is currently pricing in a 6.1% swing in the shares in the ensuing session, though this is bigger than usual. In the past eight quarters, the stock has averaged a more modest 2.6% single-day swing post-earnings -- six of which have resolved to the upside.

Based on MOS' historical performance after earnings, it looks like a good time to place a bullish bet. And history is on the stock's side in more ways than one. Most notably, surveying the past decade's worth of data, Mosaic is one of the best stocks to own in February. Specifically, the shares have advanced in nine of the past 10 years, with an average single-month gain of 11.4%.

Not to mention, the equity recently made a run at a key technical level. Specifically, MOS shares tested the 38.2% Fibonacci retracement of their decline from early 2015 to early 2016 -- en route to an annual high of $33.99 late last month -- before returning to their consolidation range between $31 and $32. However, the stock has been trending higher since its October bottom, suggesting a retest of the aforementioned retracement level could be in the cards.

Mosaic stock Chart

From a contrarian perspective, it appears MOS has potential for outsized gains, too. Put buying has really picked up, per the stock's 10-day put/call volume ratio of 0.87 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the high 71st percentile of its annual range. Echoing this, the shares sport a Schaeffer's put/call open interest ratio (SOIR) of 1.43, in the top quartile of their 12-month range. A capitulation among option bears could create tailwinds.

On top of that, short sellers and analysts are stacked against MOS. Over 9% of its float is sold short, which would take 7.5 days to cover, at the stock's average trading volume. Plus, 12 of 14 analysts rate the shares a "hold" or worse. Suffice it to say, there's potential for a short-squeeze situation or a round of upgrades -- especially if MOS earnings come in strong.

Last but not least, it's an ideal time to scoop up short-term strikes on Mosaic Co (NYSE:MOS). In spite of the looming earnings report, front-month options remain attractively priced, based on the stock's Schaeffer's Volatility Index (SVI) of 38%, which sits below 84% of comparable readings from the past year.

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