Earnings Snapshots for Week of November 18th, 2013
Salesforce.com (CRM) will report earnings 11-18 after the close and the Street expects $0.09 EPS and $1.06B in
Revenues, and for FY15 $0.52/$5.19B. CRM shares have closed higher after earnings 6 of its last 7 reports, and a 6
quarter average max move of 9.25%. The $34B leader in cloud computing trades at a premium valuation 109.4X
earnings, 9.8X Sales and 57.1X FCF, but a name gaining share in a large available market. CRM has 51.2M shares
short, 9.3% of its float, down from 58.1M shares in July. On 11-13 MKM raised its target on CRM to $67, and on 11-4
UBS hiked its target to $60. CRM is expected to double revenues over the next 3 years, and has also been active with
M&A. On the chart CRM shares are pushing up against and extension line off prior highs, also the $60 level is the
upper weekly Bollinger Band, so upside may be minimal short-term, while the trend support and 20 week EMA each
come into play down at the $50 level, though consider $52 first support. CRM's options are pricing in an 8.5% earnings
move, fairly valued, an exhibiting a normal IV Skew. On 10-31 a trader bought 1,000 February 2014 $52.50 calls at
$4.65 to open, and that same day 1,000 November 29th (W) $55 calls were bought. On 11-12 the May 2014 $65/$50
bear risk reversal traded 5,000X to open, likely a collar on a long stock holding.
CRM
Actual
Earnings
IV1/IV2 Straddle Implied IV30/HV30 Max
Closing
Date
IV1
IV2
Ratio
Price
Move
Ratio
Move
Move
Put/Call
18-Nov 77.50% 44.35%
1.75
$4.90
8.55%
1.61
29-Aug 45.93% 37.10%
1.24
$2.92
6.70%
2.11
14.40% 12.55%
0.93
23-May 45.90% 37.10%
1.24
$4.82
10.55%
1.97
-8.51% -5.34%
0.70
28-Feb 53.10% 37.70%
1.41
$3.61
9.90%
1.83
8.28%
7.55%
1.00
20-Nov 41.20% 36.25%
1.14
$3.53
9.66%
2.06
9.04%
8.82%
1.21
Trade to Consider: Sell the CRM November 22nd (W) $60/$52.50 Strangle at a $2.10 Credit
Home Depot (HD) will report results 11-19 before the opens with the Street consensus calling for $0.89 EPS and
$19.17B in Revenues, and for FY15 $4.37/$82.34B. HD shares closed lower last report after having closed higher the
prior 4, and a 6 quarter average max move of 4.6%. The $114.75B home improvement retailer trades 18.33X
earnings, 1.47X Sales and 28.23X FCF with 15-20% EPS growth, impressive growth for a large cap retailer. On 10-18
Cleveland Research cut HD's Q3 comp sales estimate to 6.5% from 7% and Q4 to 5% from 6% on weaker unit/traffic
growth. HD remains a great long term growth story as part of the housing cycle and growth in remodels and DIY
projects, though Q3 is likely to show a slowdown from Q2 that may weigh on shares initially. HD shares have a
beautiful chart set-up into earnings after a strong bounce last week, an ascending triangle looking to clear the $81 level
to target a move to $85+. On weakness shares have support at $76 and $72.65, and also the 200 SMA at $74.20. HD
options are pricing in a 4.3% move on earnings, fairly valued, and a normal December IV Skew. HD has seen bullish
positioning the past week, including 5,000 January 2014 $77.50 calls at $1.30 on 11-11, 5,000 December $77.50 calls
at $1.26 on 11-12, and 11,000 January 2014 $80 calls at $1.15 on 11-13 as a stock replacement. On 10-24 the
November 22nd (W) $77 calls were opened 10,000X at $1.74 and remain in OI, up significantly.
HD
Actual
Earnings
IV1/IV2 Straddle Implied IV30/HV30 Max
Closing
Date
IV1
IV2
Ratio
Price
Move
Ratio
Move
Move
Put/Call
19-Nov 32.90% 21.35%
1.54
$3.45
4.31%
1.26
20-Aug 39.00% 25.00%
1.56
$3.10
4.11%
1.47
3.04% -1.22%
0.38
21-May 20.80% 19.65%
1.06
$3.65
4.76%
1.45
3.53%
2.54%
0.72
26-Feb
13-Nov
29.35%
39.00%
23.85%
22.85%
1.23
1.71
$3.11
$2.23
4.87%
3.65%
1.42
1.15
6.38%
5.36%
Trade to Consider: Long the HD December $80/$82.5/$85 Butterfly Call Spread at $0.50 Debit
5.69%
3.62%
0.73
3.14
Deere (DE) will announce earnings 11-20 before the open and the Street view is for $1.89 EPS and $8.68B in
Revenues, and for FY14 $8/$54.23B. DE shares have closed lower 7 straight earnings reports, and a 6 quarter average
max move of 4.65%. The $32B agricultural equipment Co. trades 10.34X earnings, 0.84X Sales, and 3.72X Book with a
2.46% yield and expecting 8% forward EPS growth, so there is a valuation/yield bottom in shares, though trends have
weakened and estimates may need to come down further. On 11-8 BAML downgraded shares to Neutral from Buy and
an $89 target, and on 10-25 UBS reiterated a Sell rating and $72 target. Lower corn prices and crop production
forecasts are likely to weigh on DE's results. DE's short interest at 15.2M shares, 4.3% of the float, is near a 2 year
high, but relatively unchanged the past 3 months. DE on the chart has lagged the market rally and stuck in this
$80/$85 range for months. Looking at the weekly chart shares have major resistance at $85, and a break of $80
support can send shares down to the $75 level, a recent re-test of the broken uptrend failed showing technical
weakness. DE's options are pricing in a 4.25% move on earnings, fairly priced, and a steep IV Skew. DE's Nov. 22 (W)
$80 puts were bought to open 5,000X Friday at $0.46, and there are 30,000+ December $80 puts in OI from large
buyers a few weeks ago, but also 10,000+ in OI for December $85 and $87.5 calls.
DE
Earnings Date
IV1
20-Nov
14-Aug
15-May
13-Feb
21-Nov
32.95%
35.10%
25.90%
22.70%
19.80%
IV2
20.15%
22.90%
18.90%
17.60%
21.30%
IV1/IV2
Ratio
1.64
1.53
1.37
1.29
0.93
Straddle
Price
$3.50
$2.74
$5.60
$4.15
$4.02
Implied
Move
4.22%
3.35%
6.25%
4.58%
4.85%
IV30/HV30
Ratio
Actual
Max
Move
2.36
1.37
1.11
1.52
1.37
Trade to Consider: Long the DE December $82.5/$77.5 1X2 Ratio Put Spread at $0.75 Debit
-2.87%
-5.50%
-3.67%
-4.57%
Closing
Move
-1.87%
-4.40%
-3.50%
-3.67%
Put/Call
0.89
1.40
1.27
1.85
Green Mountain Coffee (GMCR) will report earnings 11/20 after the market close and the Street estimate is for
$0.75 EPS and $963.83M in Revenues, and for FY14 $3.78/$4.68B. GMCR shares have closed modestly lower 2 of its
last 3 reports, but higher the prior 2, and each of the moves higher were 25%+, an average 6 quarter max move of
27.25%. The $9.45B packaged goods Co. trades 16.7X earnings, 2.2X Sales and 19.85X FCF with 15% forward EPS
growth, a relative good looking value if it can deliver on the growth expectations. GMCR's short float at 40M shares is
30.6% of the float, and has risen sharply from 28.6M shares as of 7/1. On 11-15 KeyBanc reiterated a Buy rating and
$100 target, while Argus downgraded to Hold on 10-24. The main issue for GMCR is how will the competition impact
pricing and market share with its K-Cup business. Dougherty and Co. also downgraded shares in October on fears of
slowing growth due to execution risk. GMCR shares have been relatively weak while the market has rallied lately,
though finished the week with a bottoming reversal candle. Shares are holding just above a 38.2% Fibonacci at
$61.95, and 50% Fibonacci for the 2008 low to 2011 high at $60.55, so levels to watch are a break of $60.55 target a
move to $53.50, and then $47.45, while a recover likely finds trouble near the $72.5/$75 zone. GMCR's options are
pricing in a 12% move, well below the max moves seen in the past, and slightly cheap to recent quarter implied moves.
GMCR is showing a normal IV skew, so the OTM calls are not bid higher like it has seen in the past when it had upward
momentum, also surprising as the large short interest one would expect call buys as hedges.
GMCR
Earnings Date
IV1
20-Nov
7-Aug
8-May
6-Feb
27-Nov
114.30%
119.85%
110.80%
126.20%
106.20%
IV2
64.20%
60.75%
61.40%
79.30%
84.40%
IV1/IV2
Ratio
1.78
1.97
1.80
1.59
1.26
Straddle Implied
Price
Move
$7.60
$9.40
$7.92
$7.95
$6.20
12.06%
12.04%
13.32%
16.24%
21.42%
Actual
IV30/HV30 Max
Ratio
Move
1.43
1.95
2.22
1.97
1.88
Trade to Consider: Long the GMCR November $63 Weekly Straddle at $7.95 Debit
-8.55%
29.42%
-10.40%
29.43%
Closing
Move
-3.63%
27.84%
-5.35%
27.32%
Put/Call
1.22
1.36
1.20
1.10
Game Stop (GME) will report earnings 11/21 before the open with the Street at $0.57 EPS and $1.98B in Revenues,
and for FY15 $3.94/$9.57B. GME shares have closed higher 4 of its last 5 reports, and a 6 quarter average max move
of 9.1%. The $6.66B retailer trades 14.4X earnings, 0.78X Sales and 3.1X Book with a 1.95% yield and 15-20% EPS
growth as the new video game console launches are expected to benefit GME's business significantly. GME has 19.5M
shares short, 17% of its float, but that number has been declining, down from 35M shares in June as shorts are
squeezed. On 11-14 BMO reiterated an Outperform on GME and raised its target to $60 from $48, and on 10-31 BAML
raised its target to $64, while SunTrust is even more optimistic with a $70 target. The NPD November sales report on
12-13 will be an additional catalyst for GME to watch. GME shares have been moving higher with the 20 day EMA
supportive on dips, riding that moving average higher, and on weakness the $52 level is support, the 50 SMA at $52.70
also a level of note, followed by the $48.50 level. Upside may be limited just due to the overbought nature of shares in
relation to weekly and monthly Bollinger Bands, the monthly at $62.50 which happens to align with the high from 2007.
GME's options are pricing in a 7.15% earnings move, a bit cheap compared to prior quarters, and the average max
moves, and a slight bullish bias with the IV Skew. GME has seen active options positioning, the December $55 and $60
calls each have more than 8,000 in OI, and January 2014 $50 call OI is above 28,000. ON 11-12 the December
$60/$65 call spreads were bought 5,000X to open at $1.15, and on 11-14 3,750 December $55 calls bought the $4.35
offer to open, also 4,000 January 2014 $60 calls at $2.,98 and 3,750 April 2014 $55 calls at $7.05. On 9-13 a spread
bought 5,000 January 2014 $60 calls and sold 10,000 of the April 2014 $65 calls.
GME
Actual
IV1/IV2 Straddle Implied IV30/HV30 Max
Earnings Date
IV1
IV2
Ratio
Price
Move
Ratio
Move
21-Nov 76.80% 50.45%
1.52
$4.05
7.16%
1.92
22-Aug 68.50%
23-May 50.00%
28-Mar 48.15%
15-Nov 159.60%
49.40%
46.10%
46.65%
59.75%
1.39
1.08
1.03
2.67
$3.00
$4.16
$2.75
$2.28
6.31%
11.48%
10.40%
9.71%
1.84
1.37
1.91
1.71
17.76%
-4.02%
8.39%
5.96%
Closing
Move
9.00%
-0.66%
5.74%
4.34%
Put/Call
2.38
0.74
1.24
1.58
Trade to Consider: Sell the GME December $65/$50 Strangle at $2.05 and Buy the January 2014 $60/$65 Call Spread
at $1.30, Net Credit $0.75
Pandora (P) will report results 11/21 after the close with the Street estimate at $0.06 EPS and $174.76M in Revenues,
and for FY15 $0.25/$895.8M. P shares have closed lower 3 of its last 4 reports, and a 6 quarter average max move of
19%. The $5.55B Internet radio Co. trades 125.25X earnings and 10.5X Sales, but seeing strong growth in revenues
and listeners. P's short float of 23.5M shares is 17.1% of the float, but has been falling, down from 32.9M shares in
June. On 11-15 JP Morgan raised its target on P to $35 from $25, and Needham on 11-12 to $33 from $25. JP Morgan
notes that P is near an inflection point of monetization as a result of its growing market share. P is an early stage
growth Co. where traditional valuation metrics do not apply, and one that just needs to show continued momentum in
Company specific metrics for usage in order to maintain momentum in the stock price. The launch if iTunes radio has
showed a minimal impact to Pandora's business. Pandora shares broke out of a range last week with the move above
$28 and closed the week at new highs, the range break measuring to $32 which was achieved. An optimal buy point
for P would be a trend test down at the $24 level with shares in this upward channel, and upside may be limited nearterm with shares near resistance of that channel. P's options are pricing in an earnings move on 12.2%, and again
appear under-priced considering the average max moves and the prior implied moves. On 11-5 traders bought 5,000
December $28 calls at $2.20, and currently remain in OI, the most elevated strike with 7,500+, and now priced at
$4.75.
P
Earnings Date
IV1
21-Nov
22-Aug
23-May
7-Mar
4-Dec
118.15%
76.60%
90.40%
149.00%
104.00%
IV2
67.95%
64.50%
73.80%
83.00%
89.10%
IV1/IV2
Ratio
Straddle
Price
Implied
Move
IV30/HV30
Ratio
1.74
1.19
1.22
1.80
1.17
$3.85
$2.36
$3.68
$2.08
$1.70
12.20%
11.60%
21.45%
17.73%
17.99%
1.18
1.65
2.12
1.80
1.39
Actual
Max
Move
-13.63%
12.87%
25.31%
-20.31%
Trade to Consider: Long the P December/January 2014 $33 Call Calendar Spread at $0.55 Debit
Closing
Move
-12.89%
-4.25%
17.56%
-17.46%
Put/Call
0.96
0.20
0.60
0.68
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