Former smartphone giant BlackBerry Ltd (BBRY) will step into the earnings limelight ahead of the open on Friday, and Wall Street has some dour predictions regarding BBRY stock.
BlackBerry has had some success reinventing itself as a smartphone security firm, and has bested the consensus earnings projections in three of the past four reporting periods. However, current-quarter estimates show little faith that things are going well for BlackBerry.
Diving into the numbers, Wall Street is expecting BlackBerry to post a loss of nine cents per share in the fiscal second quarter, down sharply from a loss of just two cents per share in the same quarter last year. Revenue, meanwhile, is seen plunging 33% year-over-year to $611 million.
There are indications that some analysts have elevated expectations for BlackBerry earnings, with EarningsWhisper.com reporting a second-quarter whisper number of a loss of five cents per share. However, the majority of brokerage firms remain bearish on BBRY stock. In fact, Thomson/First Call reports that 28 of the 31 analysts following BBRY rate the shares a “hold” or worse.
Short sellers have also taken up heavy positions against BBRY stock. As of the most recent reporting period, the number of BBRY shares sold short stood at 92 million, representing 18.8% of the stock’s total float. While these shorted shares could provide fuel for a short-covering rally, traders will need to see some convincing guidance before exiting their positions.
Still, short sellers don’t appear to be taking any chances, and their caution is showing up in BBRY options activity. Currently, the September/October put/call open interest ratio arrives at a bullish reading of 0.37, with calls nearly tripling puts among short-term options. This caution doesn’t appear to apply to BlackBerry’s quarterly report, however, as the weekly September 25 put/call OI ratio comes in at a considerably more bearish 0.83.
Click to Enlarge Overall, weekly September 25 series implieds are pricing in a potential post-earnings move of about 4.4% for BBRY stock. This places the upper bound near $7.57, while the lower bound lies at $6.93.
A rally would put BBRY stock north of trendline resistance, but short of resistance at $8, while a decline would breach support at $7 and potentially confirm another downleg for BBRY.
2 Trades for BBRY Stock
Put Spread: If you follow the consensus bearish sentiment on BBRY and bet against the stock, an October $7/$7.50 bear put spread has plenty of potential. At last check, this spread was offered at 25 cents, or $25 per pair of contracts. Breakeven lies at $7.25, while a maximum profit of 25 cents, or $25 per pair of contracts, is possible if BBRY closes at or below $7 when October options expire.
Call Spread: On the other hand, if BBRY can surprise the Street with positive earnings figures or strong guidance, the resulting post-earnings move could be bigger than implieds are pricing in due to short covering and/or bullish analyst activity. As such, those traders willing to take a risk might want to consider an October $7.50/$8 bull call spread.
At last check, this spread was offered at 15 cents, or $15 per pair of contracts. Breakeven lies at $7.65, while a maximum profit of 35 cents, or $35 per pair of contracts, is possible if BBRY stock closes at or above $8 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
