Earnings on Deck: Best Buy Co Inc, The Gap Inc., and Splunk Inc

Previewing BBY, GPS, and SPLK ahead of their upcoming earnings reports

by Alex Eppstein

Published on Nov 19, 2014 at 10:54 AM
Updated on Apr 20, 2015 at 5:32 PM

Earnings season is drawing to a close, but several popular names are on tomorrow's docket. Among them are electronics retailer Best Buy Co Inc (NYSE:BBY), Old Navy parent The Gap Inc. (NYSE:GPS), and software firm Splunk Inc (NASDAQ:SPLK).

  • Best Buy Co Inc (NYSE:BBY) is scheduled to step under the earnings spotlight before the open tomorrow, and analysts are calling for a per-share profit of 25 cents for the firm's fiscal third quarter. On the technical front, the shares have struggled, losing 12% year-to-date to trade at $35.10. If past is prologue, this trend could continue following the aforementioned event. Specifically, over the previous four quarters, BBY has averaged a single-session post-earnings drop of 3.9%. However, over the last two weeks, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been upping the bullish ante. During that time frame, the stock has racked up a 10-day call/put volume ratio of 7.67, which ranks just 3 percentage points shy of an annual acme. However, a portion of these bullish bets may have been initiated by short sellers seeking an upside hedge, as 8.8% of BBY's float is sold short -- which would take more than a week to buy back, at average daily trading levels.

  • The Gap Inc. (NYSE:GPS) will report third-quarter earnings after the close tomorrow. Ahead of this event, the options market is pricing in a less than 5% post-earnings move -- which isn't unexpected, considering the stock has shifted 1.6%, on average, in the session following its last eight turns in the confessional. Technically speaking, GPS has advanced little overall in 2014 -- up roughly 1% at $39.45 -- but since hitting an annual low of $35.46 in mid-October on the heels of a management shake-up, the shares have rallied 11.3%. Nevertheless, options traders remain unconvinced. In fact, GPS' 10-day ISE/CBOE/PHLX put/call volume ratio of 1.19 sits higher than 71% of all comparable readings taken in the last 12 months.

  • Finally, Splunk Inc (NASDAQ:SPLK) will also release third-quarter results Thursday night, and Wall Street is expecting a per-share profit of a penny -- identical to what the company earned in the previous quarter. On the charts, the stock has outperformed the broader S&P 500 Index (SPX) by more than 39 percentage points during the last 60 trading days, but has stumbled 4.6% this morning to hover near $62.90, bringing its year-to-date deficit beyond 8%. Ahead of this evening's event, short sellers have been circling SPLK. During the past two reporting periods, short interest spiked 29.3%, and now makes up 8.4% of the equity's outstanding float -- which would take four sessions to buy back, at the security's average daily trading volume. This could be risky with earnings coming up, as SPLK has averaged a single-session gain of 6% following its last eight trips to the confessional, including a 19.1% rally in late August.

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