Yahoo (YHOO) will release its first-quarter earnings figures after the close of trading tomorrow, and earnings whispers are anticipating a miss by the online web-portal specialist.
Officially, Wall Street is looking for 17 cents per share from Yahoo earnings, a drop of more than 65% from earnings of 52 cents per share in the same quarter last year. Revenue, meanwhile, is expected to rise nearly 15% to $1.26 billion.
However, EarningsWhisper.com reports that Yahoo’s third-quarter whisper number comes in at a profit of 16 cents per share — a penny worse than the Street. With the bar set low, Yahoo stock could be poised to surprise many investors this week.
Despite the misgivings on the earnings front, the brokerage bunch has quite a bullish outlook on Yahoo stock. According to Thomson/First Call, 27 of the 42 analysts following YHOO rate the stock a “buy” or better, with no “sell” ratings to be found. Additionally, the 12-month price target for Yahoo stock rests at $45 — a hefty premium of 35% to current levels.
Turning to the options pits, we find some trepidation among short-term speculators. Specifically, the October/November put/call open interest ratio for Yahoo stock arrives at 0.69, with calls just outnumbering puts among near-term options. This ratio rises to 0.84 for the weekly October 23 series, hinting at a bit of concern from options traders regarding Yahoo earnings.
Click to EnlargeOverall, weekly October 23 series implieds are pricing in a potential post-earnings move of about 5% for Yahoo stock. This places the upper bound at $35, while the lower bound lies at $31.30.
Technically, a breakout above $34 could be big for YHOO stock, as this region has capped the shares since mid-August. Meanwhile, a decline would put YHOO back below its 50-day moving average, but support should hold firm near $30.
2 Trades for YHOO Stock
Call Spread: While technical resistance at $34 is a concern, the low whisper number points toward below-par expectations that could work in Yahoo’s favor. Additionally, any news on the Alibaba Holdings (BABA) could also help move the shares. As such, traders looking to jump on the bullish bandwagon might want to consider a November $34/$35 bull call spread.
At last check, this spread was offered at 33 cents, or $33 per pair of contracts. Breakeven lies at $34.33, while a maximum profit of 67 cents, or $67 per pair of contracts, is possible if YHOO closes at or above $35 when November options expire.
Put Spread: Alternately, if YHOO stock’s short-term outlook concerns you, a weekly October 23 series $30 put sell has a high probability of finishing out of the money. At last check, this option was bid at 10 cents, or $10 per contract. As long as YHOO stock closes above $30 when the weekly October options expire (at the end of this week), you retain the initial premium. However, if YHOO trades below $30 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $30 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
