Sunday, January 4, 2009

Earnings Week of 1/5/09

Welcome to the earnings New Year! Earnings releases won't really increase in volume for a few weeks but at the least, the holiday doldrums are behind us. This week doesn't have a lot on offer to scrutinize but I'll go through them anyway. Here's the spreadsheet first.

Spreadsheet Link

Before really getting into it, a few comments. SPX has finally made it through the SMA/EMA(50), on low - but increasing - holiday volume. It is also past the mid-December peak and I could understand how a chartist would comment that there is now a path to SPX 1000, which would be the Election Day high. My 2 cents on this is as follows: the market has shrugged off a relentless stream of fairly horrific macro data. Those macro numbers don't seem to affect any particular company lately. For that, the earnings reports will be needed to see just how much of a pounding specific balance sheets have taken over the holiday season. And so, considering the ability to ignore the awful macro data it doesn't seem too outlandish that SPX could achieve 1000 before the serious earnings call volume begins. Check the Yahoo! calendar for that. The one HUGE caveat that must be repeated: all the last weeks' rally has been on crap volume. So without further rambling...

Monday: MOS announces after close. The break-even values in the sheet will likely change as theta erodes some of the contract's value. However, IV could make up for some of that. A favorable reaction to news would bring a 1st (and easily hit) level of about 38 and a 2nd level in the 42 area. A lousy report could send this sliding back to the 30 area from where it began this 20% run to its current 36.86. While the PE here is in the 5s, the PEG is 1.44, which might be worth keeping in mind.

Tuesday: Nothing made it through the screen.

Wednesday: BBBY, FDO & MON. We'll take MON first - it will likely get some sympathy movement with MOS in the general Ag group. It does have a more dear valuation than MOS and I would guess that on the upside it will see resistance around 77-78, with an outside chance of recovery to mid-December high around 84. A bottom range estimate would be 66 if reaction is negative. Now for the two retailers... BBBY lost what I believe is its primary competition in Linens & Things. (At least, I considered it their biggest competition.) Anyhow, the options pricing reflects the historic movement pretty well so barring some cheapening of contracts, this is probably just as well watched for potential break-out given the chart pattern rather than as an earnings play. FDO is one of a select fraternity of stocks that actually closed out 2008 in the green - that statistic alone should tell you how lousy the economy has been. FDO doesn't usually move much at earnings however so let's move on.

Thursday: APOL & CVX. APOL has been on a tear in the last couple of months, having gapped up 5 points on 10/29 and running up to 78.37 currently. The contracts are priced reasonably and historically APOL has been fairly volatile on earnings day. My concern: given the PEG at 81.7, is the 27 PE sustainable? Further, since it is within 3.50 points of the 52-week high of 81.68, will this be a "sell the news" event? It's hard to just say, "buy the strangle" for this one since it is on Thursday. I would probably say, if the break-even pricing for the strangle still reflects what is shown in the sheet, it would be worth playing. CVX... never really moves. Just watch crude.

Friday: AZZ & KBH. AZZ has a tiny float of 11.7M shares but a similarly low average volume and is in a not very sexy sector of industrial power equipment. Interestingly, in the last 2 quarters, it has been fairly volatile with contract pricing reflective of that. Probably best to avoid. KBH has not been historically volatile around earnings. Another one that seems not worth the bother for earnings.