Earnings Snapshots for Week of August 18th, 2014
Overview
Dick's Sporting Goods (DKS) will report earnings 8/19 before the open and the Street consensus at $0.65 EPS and
$1.65B in Revenues, and FY15/FY16 projections at $2.78/$6.79B and $3.18/$7.45B. DKS EPS estimates have dropped
considerably from $0.82 90 days ago. DKS shares were hammered 18% last quarter on earnings as gun sales
retreated, and all eyes now on whether this was a onetime event or if the sporting goods industry is now losing share
to online retailers. DKS shares have closed lower 3 of the last 4 reports and a 6 quarter average max move of 8.3%
and average closing move of 5.5%. The $5.27B retailer trades 13.48X Earnings, 0.83X Sales, 3X Book and yields
1.16% with 12-15% EPS growth. DKS shares are cheap on historical measures, the bottom-end of its 5 year P/E
range. Potential weakness in Hunting and Golf is a concern into the quarter, while footwear should be strong. DKS has
5.74M shares short, 6% of the float, down from 7.19M shares in April. OpCo and RBC are both cautious into results
seeing weak trends. On 6-16 Deutsche Bank reiterated a Buy thinking the worst is over. DKS' management has guided
for 1-3% same store sales growth, a number to look for in the release. DKS institutional ownership fell 1% last
quarter. On the long-term chart shares have fallen back to a key breakout fro 2011, and a 38.2% Fibonacci is at
$39.90, while overhead resistance at $47.15. DKS also has resistance at the 50 day MA at $44.23. DKS options are
pricing in a 6.4% move on earnings, fairly priced, and exhibiting a fairly normal IV Skew despite a lot of recent call
activity. On 5-20, with shares down 18%, the December $45 calls bought 3,500X to open $2.79, and remain in OI.
The September $43 calls were seeing active buyers of 1,000 lots and then on 8-8 large buyers of more than 5,000, so
OI now above 8,900. On 7-29 a trader bought 2,000 September $44 calls $1.45 to $1.50.
Trade to Consider: Long the DKS September $43/$46/$48 Unbalanced Butterfly Call Spread at $0.85 Debit
Home Depot (HD) will report results 8/19 before the open and the Street view at $1.45 EPS and $23.62B in
Revenues, and FY15/FY16 projections at $4.41/$82.54B and $5.12/$86.2B. HD shares have closed higher on earnings
7 of the last 8 reports and a 6 quarter average max move of 3.85% and average closing move of 2.65%. HD's EPS
estimates have risen slightly the last 90 days from $1.44. The $114.46B home improvement retailer trades 16.35X
Earnings, 1.44X Sales, and 30.2X FCF with a 2.25% yield and after growing EPS 25% in 2014 expecting that to slow to
15% growth, still impressive for a large cap retailer. HD has 16.26M shares short, just 1.2% of the float, and down
from 30.64M shares in mid-June. On 5-21 RBC raised its target on HD to $97 noting that after a weather-impacted Q1,
May was robust. On 8-12 Jefferies was out positive and raised its target to $95 and Wolfe Research upgraded shares
to Outperform on 7-17. Q2 comps are expected at +4% vs. 10.7% last year. HD institutional ownership fell 1.32%
last quarter, the 22nd largest holding for Fisher Asset Mgmt., 6th largest for Maverick Capital, and 26th largest for
Marisco Capital. HD shares broke out past a major resistance last week and out of this $74/$82.50 range that targets a
run all the way up to $90, though the current channel as resistance at $85, and on a pullback from overbought shares
have support near $82 and $80.75. HD options are pricing in a 2.63% earnings move, cheapest in over 6 quarters, but
in-line with average actual moves. The November $85 calls with over 10,000 in OI notable, large buys on 6-16, 6-17,
and 7-10 account for the majority of OI.
HD
IV1/IV2 Straddle Implied
IV30/HV30 Actual
Closing
Earnings Date IV1
IV2
Ratio
Price
Move
Ratio
Max Move Move
Put/Call
19-Aug
25.10%
16.67%
1.51
$2.20
2.63%
1.33
20-May 29.80%
19.83%
1.50
$2.45
3.17%
1.17
3.02%
1.90%
0.89
25-Feb 27.30%
19.60%
1.39
$2.25
2.89%
1.40
4.01%
4.00%
0.45
19-Nov
32.90%
21.35%
1.54
$3.45
4.31%
1.26
3.26%
0.89%
0.76
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 29.35%
23.85%
1.23
$3.11
4.87%
1.42
6.38%
5.69%
0.73
13-Nov
39.00%
22.85%
1.71
$2.23
3.65%
1.15
5.36%
Trade to Consider: Long the HD September/November $85 Calendar Call Spread at $1.15 Debit
3.62%
3.14
Hewlett Packard (HPQ) will report earnings 8/20 after the close and the Street is looking for $0.89 EPS and $27B in
Revenues, and FY14/FY15 projections stand at $3.72/$111B and $3.91/$110.6B. HPQ shares have closed higher 4 of
its last 6 earnings reports, average max move of 11% and average closing move of 9.65%. HPQ's EPS estimated have
been flat the last 90 days. The $65.6B Tech Co. trades 8.97X Earnings, 0.59X Sales, 2.35X Book and 9.8X FCF with a
1.82% yield, and been an impressive turnaround story as weakness in the PC market troughed earlier this year. HPQ
has 29.3M shares short, 1.6% of the float, and fairly flat the last few months. HPQ will host an Analyst Meeting on
October 8th, and that could be an additional catalyst for shares. Brean was out on 8-13 positive on the cash flow story
and taking market shares, and Buy rated with a $40 target. HPQ's restructuring is a 5 year plan that the Company is
1/2 way through, and HPQ should remain active with buybacks and niche M&A. HPQ institutional ownership deceased
0.6% last quarter, but is the #1 holding for Dodge & Cox and Relational Investors. HPQ shares on the 5 year chart
moved through the 50% Fibonacci of the 2010 high to 2012 low at $33, now vital support, and the next level of
resistance overhead comes at the $37.50 level, re-testing a major breakdown from 2011. HPQ also has an unfilled gap
from 37.5 to 40 from 2011. HPQ shares have support levels at $34.50 and $33.50. HPQ options are pricing in a 5.28%
earnings move, cheapest in over 6 quarters, and cheap to average implied/actual moves as well. On 6-5 the November
$35 calls bought 3,500X at $1.72, and on 6-19 and 6-20 more than 5,000 November $36 calls opened, now more than
10K in OI. On 8-13 a trader bought 2,000 October $36/$35 strangles.
HPQ
Earnings Date
20-Aug
22-May
20-Feb
26-Nov
21-Aug
22-May
21-Feb
20-Nov
IV1/IV2 Straddle Implied IV30/HV30
IV1
IV2
Ratio
Price
Move
Ratio
49.50% 27.80%
1.78
$1.85
5.28%
1.94
53.85% 30.32%
1.78
$1.88
5.78%
1.74
64.70% 37.90%
1.71
$2.15
7.17%
1.54
72.80% 43.25%
1.68
$1.95
7.72%
1.54
91.25% 49.25%
1.85
$2.55
9.65%
1.77
46.00% 39.65%
1.16
$2.25 10.60%
1.51
50.50% 41.80%
1.21
$1.69
9.88%
1.63
36.80% 39.30%
0.94
$1.61 13.75%
0.80
Actual
Max
Move
7.23%
-2.28%
10.29%
-14.06%
17.52%
15.90%
-14.66%
Closing
Move
6.10%
-1.32%
9.05%
-12.45%
17.09%
12.28%
-11.95%
Put/Call
0.66
0.99
0.77
0.89
0.83
1.05
0.97
Trade to Consider: Long the HPQ September/October $37/$33 Double Calendar Spread at $0.50 Debit (Short Earnings
Volatility, Long Analyst-Day Volatility)
Game Stop (GME) will post results 8/21 after the close and the Street at $0.18 EPS and $1.63B in Revenues, and
FY15/FY16 projections at $3.68/$9,97B and $4.33/$10.76B. GME shares closed higher quarter after closing lower 3 of
the prior 4 reports, and a 6 quarter average max move of 9.6% and average closing move of 5.1%. The $4.51B
retailer trades 9.1X Earnings, 0.49X Sales, 2X Book and 8.1X FCF with a 3.33% yield and seeing positive earnings
growth, a very cheap value/yield play. GME has 30.64M shares short, 27.5% of the float, but down from 33.85M
shares in mid-June. The video game industry has been resurgent in 2014 boosted by new hardware, but concerns with
GME surround the online availability of games now and potential disruption to the used games market. In April BAML
upgraded shares to a Buy with a $56 target. GME comps are forecasted by BAML at +18% vs. (10.7%) last year, so
clearly seeing strength with this gaming cycle. GME can see multiple expansion if it delivers strong comps. GME
institutional ownership rose 1.6% last quarter, though not a notable holding at any "guru" funds. GME shares were
recently rejected near $47 and have now pulled back to near long-term trend support, and a break of $38 works
towards a move back to test $35 support, followed by $31. GME has overhead resistance at $42.50, $45, and $47.
GME options are pricing in a 6.81% move, the cheapest since last August when shares made an outsized move. GME's
August 22nd weekly options have an inverted IV skew despite no notable trades. On 8-14 1,,350 September $40 calls
bought to open, but on 8-7 the September $50 puts bought 2,400X to open and 1,000 September $44 puts that remain
in OI. On 7-18 the October $41 puts bought 6,370X to open at $2.66, on 7-21 October $40 puts bought 7,000X to
open $2.34, and on 7-29 the October $38 puts bought 19,600X to open at $1.85.
GME
Earnings Date
21-Aug
22-May
27-Mar
21-Nov
22-Aug
23-May
28-Mar
15-Nov
IV1
IV2
70.70% 39.65%
50.50% 44.25%
37.50% 40.00%
76.80% 50.45%
68.50% 49.40%
50.00% 46.10%
48.15% 46.65%
159.60% 59.75%
Actual
IV1/IV2 Straddle Implied IV30/HV30 Max
Closing
Ratio
Price
Move
Ratio
Move
Move
Put/Call
1.78
$2.70
6.81%
1.38
1.14
$4.15 11.25%
1.31
7.16%
4.18%
1.17
0.94
$3.15
8.44%
1.02
-9.33%
-4.03%
1.45
1.52
$4.05
7.16%
1.92
-11.02%
-6.94%
0.70
1.39
$3.00
6.31%
1.84
17.76%
9.00%
2.38
1.08
$4.16 11.48%
1.37
-4.02%
-0.66%
0.74
1.03
$2.75 10.40%
1.91
8.39%
5.74%
1.24
2.67
$2.28
9.71%
1.71
5.96%
4.34%
1.58
Trade to Consider: Long the GME October $38/$33 Put Spread at $1.50 Debit
Salesforce.com (CRM) will report earnings 8/21 after the close and the Street consensus calling for $0.12 EPS and
$1.29B in Revenues, and FY15/FY16 projections at $0.51/$5.34B and $0.71/$6.61B. CRM shares have closed lower 3
straight reports and 4 of the last 5, an average 6 quarter max move of 8.4% and average closing move of 6.85%. The
$32.9B cloud leader trades 75.6X Earnings, 7.48X Sales and 43.3X FCF. CRM has 39.77M shares short, 7% of the float,
down from 45M shares in May. On 8-12 Pac-Crest noted channel checks indicate a strong quarter. On 5-29 CSFB
lowered its target to $75 and on 5-22 Macquarie cut to a $65 target. BAML on 8-13 reiterated a Buy and $73 target
calling it their favorite large cap growth idea for the second half, expecting 27% billings growth, the key number to
watch. CRM's institutional ownership retreated 0.16% last quarter, 7th largest holding at Sands Capital and 17th
largest at Marisco Capital. CRM shares have not participated in the recent Tech rally, a worrisome signal, and shares
near key long-term trend support with $52.50, $50, and $47.50 levels of note below. Shares are currently stuck
between the 23.6% and 38.2% Fibonacci retracements, and above $55.40 sets up for a move to $57.60, and then $60
resistance. CRM options are pricing in a 6.15% move, cheapest in over 6 quarters, and a fairly steep IV Skew slope.
CRM has recently seen some put accumulation in February 2015 $45 puts and Jan. 2016 $45 puts, some long term
valuation concerns if growth slows. On 7-14 a trader bought 3,000 November $52.50 puts $3.45, on 7-3 the November
$50 puts bought 2,000X at $1.74, but on 7-24 a trader bought 2,000 October $52.50 calls $4.55 and 1,000 September
$62.50 calls $0.62 offer. On 6-30 the September $57.5/$50 put ratio spread opened 2,000X4,000 and on 7-17
September $52.50 puts sold to open $2.85 for 2,500X.
CRM
Earnings
IV1/IV2 Straddle Implied
IV30/HV30
Date
IV1
IV2
Ratio
Price
Move
Ratio
21-Aug 60.10%
36.60%
1.64
$3.30
6.15%
1.28
20-May 64.00%
39.76%
1.61
$3.30
6.37%
0.91
27-Feb 71.70%
44.33%
1.62
$5.05
7.94%
1.31
18-Nov 77.50%
44.35%
1.75
$4.90
8.55%
1.61
29-Aug
23-May
28-Feb
20-Nov
45.93%
45.90%
53.10%
41.20%
37.10%
37.10%
37.70%
36.25%
1.24
1.24
1.41
1.14
$2.92
$4.82
$3.61
$3.53
6.70%
10.55%
9.90%
9.66%
2.11
1.97
1.83
2.06
Actual
Max
Move
Closing
Move
Put/Call
-6.18%
-7.92%
-5.33%
-5.10%
-5.81%
-4.99%
0.70
0.70
0.84
14.40%
-8.51%
8.28%
9.04%
12.55%
-5.34%
7.55%
8.82%
0.93
0.70
1.00
1.21
Trade to Consider: Long the CRM September/November $50 Put Calendar Spread $1.35
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