Earnings Preview: Darden Restaurants, Inc., KB Home, and Tiffany & Co.

Analyzing recent option activity on Darden Restaurants, Inc. (DRI), KB Home (KBH), and Tiffany & Co. (TIF)

Mar 19, 2015 at 1:46 PM
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Among the stocks gearing up to report earnings tomorrow morning are Olive Garden parent Darden Restaurants, Inc. (NYSE:DRI), homebuilder KB Home (NYSE:KBH), and luxury jeweler Tiffany & Co. (NYSE:TIF). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on DRI, KBH, and TIF.

  • DRI has been a technical juggernaut, with the shares up a staggering 32.3% year-over-year to hit $65.22. In fact, just yesterday the shares hit a record high of $65.75. Despite Darden Restaurants, Inc.'s positive price action, the brokerage bunch is divided on the equity, as 57% of covering analysts rate the stock a "hold" or worse. Additionally, DRI's consensus 12-month price target of $59.83 sits below current trading levels, leaving plenty of room for a round of bullish attention to provide tailwinds. Meanwhile, in the session immediately following its last four earnings reports, DRI has shed an average of 1.2%, but jumped 2.8% after report earnings last March. Near-term options are available for historically middling prices, as the stock's Schaeffer's Volatility Index (SVI) of 27% sits in the 55th percentile of its annual range.

  • KBH is up 16% since notching a two-year low of $11.76 on Jan. 22. Today, however, the shares are down about 2.6% at $13.64, ahead of tomorrow morning's fiscal first-quarter earnings release, swooning in sympathy with sector peer Lennar Corporation (NYSE:LEN). Sentiment in the options pits has been bullish, as KB Home's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 17.90 sits in the 89th percentile of its annual range. Traders hoping for post-earnings upside have history against them -- in the session immediately following its last four earnings reports, KB Home has lost an average of 2.8%, including a massive 16.3% drop in January. Short-term options are in demand, as the equity's 30-day at-the-money (ATM) implied volatility (IV) of 42.2% is in the 92nd percentile of its annual range.

  • On the other hand, TIF has taken a nose dive, down 22.2% since achieving an all-time high of $110.60 on Nov. 25. What's more, the security touched an annual low of $82.75 just last week. Accordingly, bearish sentiment in the options pits has been ramping up, as Tiffany & Co.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 1.37 stands higher than 78% of all equivalent readings taken over the past year. Looking elsewhere, in the session immediately following its last four earnings reports, TIF has increased an average of 3%. Today, TIF's 30-day ATM IV is 0.9% higher at 31.3%, in the 91st percentile of its annual range. At last look, TIF is 0.7% higher at $86.06.
 

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