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Humana earnings push HUM higher
Humana (NYSE: HUM) reported third-quarter income today of $302.4 million, or $1.78 per share, up from $159.2 million, or 95 cents per share, a year earlier -- an increase of 90%. Excluding special items, Humana's Q3 EPS was $1.53. Analysts were expecting earnings of $1.49 per share from the health insurance company. This morning's positive surprise lifted the stock to a new all-time high of $81.50 just after the opening bell.Additionally, the company projected that it would add at least 200,000 members to its full-service Medicare Advantage plans. The company has an optimistic outlook for 2008, thanks to improvements in its Medicare prescription-drug plans and commercial plans for employers. The company estimated full-year 2007 earnings of $4.50 to $4.55 per share, slightly above the Wall Street target of $4.52. Humana forecast 2008 earnings of $5.30 to $5.50, also above analysts' expectations of $5.20. If you think these figures represent company strength, then now might be a good time to look at a bullish hedged trade on HUM.
Continue reading Humana earnings push HUM higher
Home sales data gives Toll (TOL) a small boost
The housing sector finally got a break today after the Commerce Department reported that September new home sales were up from the August numbers, to 770,000 in the month from 735,000 in August. Analysts were at best cautiously optimistic, stating that one month's report does not mean the downtrend in housing has been reversed, and also that the Commerce Department numbers are not always accurate. The figures were revised down by almost 10% in August, in fact. However, Toll Brothers (NYSE: TOL), as a luxury home builder, is somewhat less exposed to the credit problems plaguing others around the industry. If you think the September sales numbers are a good sign, then now could be a good time to look at a bullish hedged trade on TOL.
Like others in the housing sector, TOL has been beaten down this year, from a high of $35.64 in February to a low of $18.85 in August. The stock has seen some gains over the last two months, but continues to struggle against resistance in the low $20s. TOL opened this morning at $22.16. So far today the stock has hit a low of $22 and a high of $23.19. As of 2:50, TOL is trading at $22.49, up $0.31 (1.40%). The chart for TOL looks bullish with slight deterioration, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.
Continue reading Home sales data gives Toll (TOL) a small boost
Competitors lift US Airways (LCC) ahead of Thursday's earnings
The airline sector is seeing nice gains today after positive earnings reports from JetBlue (NASDAQ: JBLU) and UAL Corp (NASDAQ: UAUA), and the declining oil futures are helping, too. US Airways (NYSE: LCC) is scheduled to report its third quarter earnings before the market opens on Thursday. In light of major fuel price increases, US Airways has cut its capacity and is considering increasing fares in the next quarter. The airline had better-than-expected traffic over the past few months, and a Goldman Sachs analyst noted that LCC should benefit from fare hikes at low-cost carriers like Southwest (NYSE: LUV), as some customers are likely to defect to US Airways.
On average, analysts are expecting earnings of $1.75 per share, down from $2.74 last quarter, but up from from $1.09 in the year ago period. LCC has beat Wall Street expectations each of the last eight quarters. Though fuel prices have pressured the airlines as oil climbs well into the $80s, the solid earnings from others in the industry this quarter should bode well for the company. If you expect LCC to also report a positive quarter, then now could be a good time to take a look at a bullish hedged trade on the stock.
Continue reading Competitors lift US Airways (LCC) ahead of Thursday's earnings
American Express (AXP) surges in after hours trading
American Express (NYSE: AXP) shares took a bit of a beating last week, dropping over 10% as financial stocks turned in one bad earnings report after another over the course of the week. The stock lost another 0.42% today as investors braced for more bad news from the financial sector as the nation's third-largest credit card company was scheduled to announce its third quarter earnings after the closing bell.But the company delivered a positive surprise, sending shares up as much as 3% in after hours trading. Increased spending by American Express' consumer and corporate clients boosted quarterly profit up 10% to $0.90 per share, surpassing Wall Street expectations of $0.86 per share. The company's revenue climbed 11% to $6.945 billion, which is a touch shy of analysts' estimates of $7.27 billion. Nevertheless, the report is viewed as positive by investors concerned that American Express would also fall victim to the credit woes that have weighed heavily on companies like Bank of America (NYSE: BAC) and Citigroup (NYSE: C), which reported higher loss ratios in their credit card businesses last week.
Delinquencies edged higher year-over-year, but were in-line with the previous quarter's performance. American Express has dodged some of the credit problems other financials are facing now due to the company's focus on a wealthier, more reliable customer base.
A large portion of the company's revenues come from fees charged to merchants for transactions, called the "discount rate." American Express CFO Daniel Henry noted that the company may cut its discount rate, which is currently 2.5%, due to competition from other major credit cards. Visa and MasterCard (NYSE: MA) charge approximately 2%, which puts some pressure on American Express, as many merchants refuse to accept these charge cards because of the higher fees. More merchants accepting the cards could potentially offset losses from cutting the discount rate, if the company is forced to go that route.
The company remains "cautious" on the economy, and increased its provisioning for potential loan losses by 25 percent to $982 million, but Henry is confident that the company is better positioned than its competitors due to its more affluent customer base.
Meg Massie is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Meg is long AXP.
J.C. Penney (JCP) falls to 52-week low following Labor Department report
J. C. Penney Inc. (NYSE: JCP) has been sliding today, setting a new 52-week low. It's in good company. The entire retail sector is flailing after the Labor Department reported that applications for jobless benefits rose to 337,000 last week, the largest amount since early February, leading investors to fear that consumer spending could tighten even more as we head into the holiday season.
Also lending to the department store's woes, competitor Bon-Ton Stores Inc (NASDAQ: BONT) warned on Wednesday that the company would likely miss 2007 earnings estimates. If you think that these factors are enough to weigh down J. C. Penney's stock over the next few months, then now could be a good time to take a look at a bearish hedged trade on JCP.
Continue reading J.C. Penney (JCP) falls to 52-week low following Labor Department report
Amylin Pharmaceuticals (AMLN) earnings preview
Amylin Pharmaceuticals (NASDAQ: AMLN) is scheduled to report its Q3 2007 earnings after today's market close. Analysts are predicting a loss of $0.42 per share, down significantly year-over-year and quarter-over-quarter. The company had a big miss last quarter, coming in 16% below expectations, earning just $0.42 per share.
Though the company has a long string of EPS losses on record, its previous earnings miss was back in Q1 2006. AMLN shares fell hard yesterday after the FDA warned that the company's diabetes drug Byetta may be linked to acute pancreatitis in some patients. This warning came too late to affect the most recent earnings, but could have a negative effect on the company's next quarter. If you think the stock won't rise by too much over the next few months, then now could be a good time to take a look at a bearish hedged trade on AMLN.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $65 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in 3 months as long as AMLN is below $65 at January expiration. AMLN would have to rise by more than 40% before we would start to lose money on this trade.
AMLN has not ever been above the mid-$50s, and has shown resistance just below $51 recently. This trade could be risky if AMLN posts a positive surprise tomorrow, but even if that happens, the recent warning from the FDA could keep investors wary of this stock over the coming weeks.
Meg Massie is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Meg neither owns nor controls positions in AMLN.
Will competition from generics stifle Pfizer's (PFE) earnings?
Pfizer Inc. (NYSE: PFE) is scheduled to report its Q3 2007 earnings before tomorrow's market open. Analysts are predicting earnings of $0.52 per share. The company had a big miss last quarter, coming in 16% below expectations, earning just $0.42 per share. In the year-ago quarter, Pfizer reported earnings of $0.54 on expectations of $0.45 per share. Pfizer's new anti-smoking treatment Chantix has performed well along with several of the company's newer drugs, but increasing competition from generic drugs have been hurting Pfizer's sales of drugs like Lipitor, Norvasc, and Zoloft. Last month, Pfizer projected 2007 Lipitor sales to come in flat or 5% below last year's figures. If you think that generic drug competition will weigh heavily on Pfizer's earnings and outlook, then now could be a good time to take a look at a bearish hedged trade on the PFE.
This stock has traded within a $5 range throughout the year, with a sharp drop in the late summer months. Recently, PFE has been on an uptrend, though the stock has been unable to push past resistance in the mid-$20's recently. PFE opened this morning at $24.75. So far today the stock has hit a low of $24.65 and a high of $24.86. As of 10:30, the stock is trading at $24.77, up $0.14 (0.57%). The chart for PFE has been bullish but deteriorating, and S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider a January bear-call credit spread above the $27.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 8.6% return in 3 months as long as PFE is below $27.50 at January expiration. PFE would have to rise by more than 11% before we would start to lose money on this trade.
Continue reading Will competition from generics stifle Pfizer's (PFE) earnings?
Starwood Hotels to open W Bangkok
Starwood Hotels & Resorts Worldwide (NYSE: HOT) announced today that its W Hotels unit will open W Bangkok in 2011. The new hotel will feature 400 rooms and will be part of a mixed-use development in Bangkok's commercial and diplomatic center. If you think that the company will not fall by too much over the next few months, now could be a good time to look at a bullish hedged trade on HOT.After climbing to a one-year high of $75.45 in July, HOT took a nosedive to a 52-week low of $52.63 just six weeks later in August. The stock has had a bumpy ride over the past few months, but appears to be settling in with support just below $60. HOT opened this morning at $59.55. So far today, the stock has hit a low of $59.06 and a high of $61.53. As of 3:00 p.m., the stock was trading at $60.46, up $0.72 (1.21%). HOT's chart is improving from bearish to neutral, while S&P gives the stock an encouraging 4 STARS (out of 5) buy rating.
For a bullish hedged play on this stock, I would consider a January bull-put credit spread below the $45 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just 3 months as long as HOT is above $45 at January expiration. Starwood Hotels would have to fall by more than 25% before we would start to lose money.
HOT hasn't been below $45 since October 2004 and has shown support in the upper $50's recently. This trade could be risky if the company's earnings (due out 10/25) disappoint, but even if that happens, this position could be protected by strong historical support around $55. Additionally, HOT has a strong history of beating earnings estimates, with the company's last earnings miss coming in Q1 2003.
Meg Massie is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Meg neither owns nor controls positions in HOT.
JB Hunt (JBHT) misses expectations; Analysts remain positive
After the closing bell on Thursday, JB Hunt (NYSE: JBHT) announced earnings that missed analyst expectations as profit fell 12% in the quarter, but analysts remain generally optimistic on the stock. A Goldman Sachs analyst maintained his buy rating on the company, saying that the weak trucking results may hurt shares for a few days, but the intermodal railroads, which carry goods between other modes of transportation, are more important to the company. A KeyBanc Capital Markets analyst said he was also impressed with the company's gains in the intermodal market. If you agree with these analysts and think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on JBHT.After hitting a one-year high of $31.94 in July, the stock has been slipping over the past few months. JBHT opened this morning at $26.86. So far today the stock has hit a low of $26.36 and a high of $27.07. As of 11:30, JBHT is trading at $27.49, up $0.40 (1.48%). The chart for JBHT looks bearish but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a February bull-put credit spread below the $22.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. This particular trade will make a 19% return over just 4 months as long as JBHT is above $22.50 at February expiration. The stock would have to fall by more than 19% before we would start to lose money.
JBHT hasn't been below $22.50 since January and has shown support around $25.50 recently. This trade could be risky if the company's next earnings (due out a few weeks before February expiration) disappoint, but even if that happens, the stock would have to break through strong historic support before this position is in trouble.
Meg Massie is an options analyst and writer at Investors Observer.
DISCLOSURE: At publication time, Meg neither owns nor controls positions in JBHT.
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