Throughout earnings season I send these to subscribers each Sunday night, and for the bigger names I do In Depth Earnings Focus Stories, examples at: http://optionshawk.com/index_files/optiontrader.html
I wanted to review them:
Earnings Snapshots for the Week of August 15th-19th
Agilent (A) reports earnings Monday after the close and shares have been under pressure the last few weeks on a fall from $55 to below $35. The $12.6B maker of life sciences instruments trades 11X earnings, 0.88 PEG, 2X sales and 15.66X cash flow, and has beaten Analyst estimates the last 4 quarters, averaging a 4.5% move the past 6 reports. Jefferies recently reiterated a Buy and $65 target, noting it is underweight government/academic end-markets. Shares are oversold and could form a higher base near $32.50, trend from November 2009 and August 2010 lows. Agilent options are fairly liquid with $1 strikes, and recent trading highlights are 3,600 August $42 calls bought on August 2nd, and Friday August 12tht he August $33 puts bought 1,288X while August $37 calls also with buyers for 1,784 contracts.
Trade to Consider: Sell the A August $37 Straddle at $3.05
Result: Agilent (A) stuck right near that $37 level following earnings and the straddle could be closed at $1.85
Home Depot (HD) will report results Tuesday before the open and shares recently completed a measured move of a breakdown after a major top made at $38. Shares of the $48.7B home improvement retailer trade 11.6X earnings, 0.7X sales and 2.7X book, fairly cheap on a historic basis and a nice 3.27% yield, but the weak Housing Market and lack of consumer spend likely will limit the upside to the report. Jefferies cut shares to Hold from Buy August 10th and moved the price target to $33 from $44. Options are actively traded and 30,000 September $32 puts were sold on August 11th, after a trader rolled 25,000 September $36 puts to the $32 strike on August 4th. Traders bought 5,000 August $29/$30 call spreads for $0.56 to open on August 8th and 5,000 August $31/$33 call spreads at $0.34 on August 8th. Lowe’s reports Monday morning and if HD trades lower in sympathy it may be a good opportunity to pick up cheap upside calls as the bad would likely be priced in before the report.
Trade to Consider: Long the HD November $30 Calls at $2.25 or Better
Result: Home Dept shares jumped big and the calls jumped to $4, solid winner.
Perrigo (PRGO) reports earnings Tuesday before the open and shares recently bounced on its 200 day EMA, and a trader bought 2,000 August 85/95 call spreads that remain in OI. The maker of generic brands for OTC drugs benefits from consumers looking for deals, and should continue to report strong results. Shares have moved more than 9.5% 3 of the last 6 quarters, and beat Analyst estimates by more than 10% the past 3 reports. Shares trade 19.4X earnings, 3X sales and 37X cash flow, fairly rich on valuation. Short Interest in PRGO fell 13% in the latest report, and UBS has shares Buy rated with a $100 target, expecting 2H 2011 momentum to pick-up.
Trade to Consider: Long PRGO Shares at $88 and Sell the November $100 Calls at $3.30
Result: Shares sold off early but recovered and actually closed above $90, a winning trade, but one to stay in for the long haul.
Dick’s Sporting Goods (DKS) will report results Tuesday before the open and shares recently re-tested a major breakout level from November 2010 and bounced, support now near $29. The $3.87B sports retailer trades 14.2X earnings, 0.78X sales and 19.56X cash flow, a fairly good value, raised to Buy with a $45 target by Needham in May and $50 target at OpCo. Sterne Agee is negative the name with a Sell rating, but $32 target, not liking the open stock model footwear service, 20% of revenues. Dick’s has beaten estimates the last 4 quarters and averaged 6.5% moves the past 3. Option traders have been actively positioning the week into earnings, an interesting spread Friday with 1,500 August $31 puts bought and the September $28/$26 ratio put spread traded 1,000X2,000, while 1,000 August $30 puts were bought to open on August 11th.
Trade to Consider: Long the DKS August $33/$31 Strangle at $1.45 or Better
Result: Dick’s did not see the volatile move I was looking for, but the spread could still be closed around $1.75, a small gain.
Analog Devices (ADI) will report earnings Tuesday after the close and shares are -resting a major breakout level from last November, also at support of an extension of a channel down pattern. ADI reported a fantastic quarter last time and shares are cheat at 10.46X earnings, 0.96 PEG, and 2.75X cash value with a 3.2% dividend yield, attractive despite potential 2H 2011 headwinds for Semiconductors, much of which seems to be priced in at this point. Sterne Agee cut to Neutral from Buy on August 4th and Morgan Keegan reduced estimates last week, although noted ADI’s broad exposure helps mitigate downside. Traders bought 2,200 August $31 puts at $0.45 on August 4th, while September $33 puts were sold to open 2,00X a few weeks ago. ADI’s largest earnings move came last report with a 5.9% move higher, while the prior two were down less than 1%, and previously averaged around 4%.
Trade to Consider: Long the ADI August/September $33 Calendar Call Spread at $0.50
Result: We actually took this trade and closed at $0.65 for a 30% gain the next day as shares were up despite poor results, so it felt right to get out.
Abercrombie (ANF) reports earnings Wednesday before the open and shares have held up better than the market, recently testing its 200 day EMA and prior breakout and bouncing, putting the $60 to $77 range in play. Same store sales have been strong in recent months, and shares are trading 15X earnings, 1.7X sales and 37.4X cash flow with 8.58% of the float short. BofA reiterated a Buy and $90 target last week, and Wedbush previewed the quarter noting the stock already expects upside Q2 with fewer promotions, lean inventory and strong International momentum. Options are active in ANF and on August 2nd a trader bought 2,500 September $75 calls at $3.10, while another trader sold 1,800 September $77.50/$60 strangles along with 1,200 September $70 calls bought. The following day a trader bought 1,500 September $77.50 calls to open. On August 10th the November $60/$75 ratio call spread was bought 1,300X2,600. ANF has averaged just 4% moves the past 6 quarters, the downside moves the larger magnitude moves.
Trade to Consider: Sell the ANF August $75 Call at $1 and Buy the September $75/$80 Call Spread at $1.40
Result: ANF shares are down and the Aug. call will expire worthless, but still stuck with a September call spread, currently a losing position.
Netease.com (NTES) is set to report results Wednesday after the close and shares were strong last week with 4 strong consecutive days. The Chinese Internet Co. trades very cheap at 12.5X earnings, 0.84 PEG, and 14.6X cash flow. NTES has beaten estimates 3 straight quarters and shares have averaged 6% moves the past 4. Traders started to accumulate some August $50 calls late last week with 974 trading Friday. Shares are currently in a channel down with lower highs being made, currently back near the middle of the range and RSI and MACD Neutral. CLSA expects a blowout Q2 and strong Q3 driven by WoW and its new game GHOST.
Trade to Consider: Long the NTES September $50/$55/$60 Butterfly Call Spread at $0.85
Result: NTES reported very strong results, but caught up in the market weakness and closed down 9.35%, and butterfly spread currently pricing at $0.50.
JDS Uniphase (JDSU) will report results Wednesday after the close and shares have been in a strong trend lower, off 60% from February highs as the optics sector has been under pressure. Shares now trade 10.5X earnings, 42.7X trailing, 1.54X sales and 4X cash value. JDSU has beaten estimates the last 4 quarters, and has made 2 20%+ moves in the last 5 quarters on earnings, although the other 3 only average 4.5%. On August 12th Morgan Stanley previewed the quarter, saying to expect soft results with weak T&M spending, and maintained Equal Weight. Traders bought 9,000 August $11 calls to open on August 11th in big size. Call OI at 184,337 compares to Put OI at 116,846, elevated towards calls due to multiple takeover chatter reports. Shares have major support near $9.50 and resistance at $14. Aug. IV at 117.6% compares to September at 86.88%, a major disparity.
Trade to Consider: Long the JDSU August/September $14/$10 Double Calendar Spread at $0.65 Debit
Result: JDSU looks set to close right near $10 on options expiration, so the September puts can be closed around $1 for a nice gain, or can be held for more downside.
Dollar Tree (DLTR) will report earnings Thursday before the open and is one of the few names to maintain its longer term uptrend with the recent bounce at $60. Dollar Tree has beaten estimates the last 4 reports and 4% average earnings moves. Shares trade 15X earnings, 1.34X sales and 18.3X cash flow, and if we are heading for another recession, a name that tends to outperform. It is one of the few names Jefferies kept a Buy rating on last week, $72 target, and Piper raised to Overweight with an $87 target on July 27th. Shares have clear resistance at $70 and support at $60 and $57.50. Options action jumped on August 11th as the September $65/$70 put ratio spread traded 2,00X4,000 along with 1,000 September $70 calls sold, potentially a hedge. On July 5th more than 4,000 August $67.50 puts were bought at $1.85 and more than 2,900 remain in OI.
Trade to Consider: Long the DLTR August/September $62.50 Put Calendar Spread at $0.80
Result: September puts can be closed around $1.80 with August to expire, a big win.
GameStop (GME) reports earnings Thursday before the open and shares have fallen hard the past few weeks, but still a value at 6.5X earnings, 0.3X sales, 0.98X book and 5.7X cash flow, often seen as a value trap due to the troubles in brick-and-mortar retail and also weak video game sales numbers. GME tends to report In-Line quarters and only averaged 2% moves the past 4 quarters. Pac Crest cut to Underperform in July. July US video game sales fell 26%, the worst since 2006. GME used to be actively trading, but not a lot of Open Interest in August/September options. There has not been any unusual options action in recent weeks.
Trade to Consider: Long the GME August $21 Puts at $0.85 or Better
Result: The puts got above $2.50, a great win, and an easy profit take. Shares eventually rallied, but the anyone in their right mind takes a 200% gain.
Foot Locker (FL) will report earnings Thursday after the close and shares recently pulled back to fill a gap at prior major resistance, now support near $17, also holding a trend off the prior 2 lows. BMO started shares Outperform with a $25 target in July, and judging from recent earnings from the footwear names (UA, NKE, CROX, DECK), earnings should be fairly strong. FL has beaten EPS estimates may 30% or more in 3 of the last 4 reports, and traded higher by 12.8% and 11.6% in 2 of those. August IV of 82.9% compares to September at 58.9%, a wide margin, and August IV skew has a bullish look. The $2.9B retailer trades just 10.6X earnings, 0.56X sales, and 3.6X cash with a 3.5% dividend, very attractive from the perspective. Traders sold 4,000 September $25 calls to open on July 29th, and bought 4,000 August $20 puts. On August 9th more than 4,900 August $20 calls traded, but look to have been sold to open.
Trade to Consider: Long the FL August/September $20 Call Calendar at $0.40 or Better
Result: FL indicated higher on strong results, looks like it should be a winning trade.
Intuit (INTU) will report earnings Thursday after the close and shares are 25% off recent highs, but still fairly rich at 20.7X earnings, 1.47 PEG, 3.4X sales and 15.7X cash flow. The $12.9B maker of tax software was raised to Buy at UBS with a $57 target in late July. The recent return to $40 filled an August 2010 gap, also Fibonacci support from October 2009 lows to recent highs. Goldman’s options team see’s INTU options as cheap for directional views. Intuit has beaten estimates the last 4 quarters, and although just a 1.65% move last report, the prior 5 averaged 8%. Friday saw a notable trade with an adjustment to 4,000 January $46/$37.50 bullish risk reversals, a strong directional play.
Trade to Consider: Long the INTU August $42 Straddle at $2.55 or Better
Result: Depends on the move tomorrow, but could be a loser.
Autodesk (ADSK) will report earnings Thursday after the close and shares are trading near 1 year lows and extremely oversold, off more than 30% this year. Shares now trade 14.6X earnings, 3.36X sales and 13.9X cash flow, fairly cheap for a growth Software names, buts its exposure to engineering and construction is likely to hamper results. RBC reiterated Perform on 8-12 and lowered its target to $35 from $46, while Jefferies raised to Buy with a $44 target on 7-22. ADSK has beaten Analyst estimates by a narrow margin the last 3 quarters, and averaged 6% earnings moves. A move higher likely sees resistance at $32, while $28 is support. On August 9th the August $27, $26 and $25 puts saw aggressive buying, and July 27th a buyer of 2,000 August $33 puts and 1,700 August $31 puts.
Trade to Consider: Long the ADSK August $29 Puts at $1 or Better
Result: The Tech sell-off hit shares before earnings and the puts were worth $2.75, and always take profits ahead of earnings if you already have a nice gain, no need to risk it.