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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerAutodesk, Inc. (NASDAQ: ADSK) is scheduled to release its first-quarter earnings results after the closing bell today. Analysts, on average, are expecting the company to report a profit of 8 cents per share, down sharply from ADSK's profit of 50 cents per share in the year-ago period. Sales for the period are expected to arrive at $419 million.
Thomson First Call reports that the software concern has exceeded Wall Street's consensus earnings estimates in each of the previous four reporting periods, but pessimism is nevertheless running high ahead of tonight's announcement. On Wednesday, traders on the International Securities Exchange (ISE) bought to open 3,607 puts on ADSK, compared to just 84 calls. In other words, bearish bets were nearly 43 times more popular than their bullish counterparts.
The day's skeptically skewed option volume was simply the extension of a recent trend; ADSK boasts a hefty 10-day ISE put/call volume ratio of 9.56, indicating that traders have consistently preferred puts over calls during the two weeks preceding the earnings release. This ratio ranks in the 99th percentile, revealing that pessimistic options on the equity have rarely been in greater demand.
In the front-month June series, put players have honed in on the 20 strike, with 6,296 contracts in residence. The preference for this round-number strike indicates that the bears aren't necessarily very confident that ADSK will plunge post-earnings; the stock already trades below the $20 level, which has exerted resistance since last November.
Elsewhere on Wall Street, analysts have also adopted a downbeat stance on ADSK. Zacks reports that only two analysts consider the shares worthy of a Buy rating, while the remaining 12 brokerage firms rate the stock a Hold or Sell. Meanwhile, the equity's average 12-month price target of $18.27 represents a discount of 4.5% to Wednesday's closing price. In short, skepticism is pretty heavy from this group.
Heading into tonight's report, this wealth of negative sentiment should be a boon for ADSK. If the company continues its trend of surpassing analysts' profit estimates, an unraveling of bearish bets could translate to fresh buying pressure (potentially even sending the stock through that stubborn resistance at $20).
On the other hand, if earnings come in worse than expected, plenty of pessimism is already priced into the shares, which could minimize the magnitude of any post-earnings sell-off.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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