Earnings Drag Down Peabody Energy Corporation, Cummins, Inc.

Disappointing earnings reports are taking a toll on Peabody Energy Corporation (BTU) and Cummins, Inc. (CMI)

Oct 27, 2015 at 12:24 PM
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While some stocks are tearing up the charts on earnings, others are not. Among the notable losers are coal concern Peabody Energy Corporation (NYSE:BTU) and diesel engine manufacturer Cummins, Inc. (NYSE:CMI), with their struggles potentially exacerbated by a six-week low in oil prices. Here's a closer look at the post-earnings damage on BTU and CMI.

BTU was last seen 17% lower at $17.97, and on the short-sale restricted (SSR) list, as the company's narrower-than-expected third-quarter loss is being overshadowed by a projected decline in coal demand. The company also lowered its 2015 U.S. volume guidance by 5 million tons and its annual capital expenditures target to $140 million.

The price action has BTU puts flying off the shelves at five times the expected intraday clip -- though most of this activity resulted from a 5,000-contract block of December 1.50 puts that was sold to close, according to the International Securities Exchange (ISE). More broadly speaking, option buyers have shown a slight preference for calls over puts, per the stock's 10-day ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.67 -- in the 62nd annual percentile. A continued unwinding of these bets could create further selling pressure.

Elsewhere, while short sellers have been forced to the sidelines today, they haven't been shy longer term -- not a surprise, considering the security's woeful technical track record. An astounding 88.8 million Peabody Energy Corporation shares are sold short, which would take nearly two weeks to repurchase, at the equity's average daily volumes. Elsewhere on the sentiment front, Cowen and Company adjusted its price target on the stock to $45 from $3, reflecting a 1-for-15 reverse stock split from earlier this year.

Shifting gears, CMI is fresh off a near-three-year low of $100.61, on the heels of disappointing earnings and revenue figures, and newly announced plans to lay off 2,000 employees. At last check, the shares were 8.6% lower at $102.50 -- and on the SSR list -- bringing their year-to-date deficit near 29%.

In intraday trading, options are crossing at about nine times the usual rate. The two most active options are the December 105 call and January 2016 90-strike put, each of which is seeing buy-to-open activity. Longer term, the preference has been for long calls over puts, per Cummins, Inc.'s 10-day ISE/CBOE/PHLX call/put volume ratio of 1.07 -- outstripping 63% of comparable readings from the past year.
 

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