Schaeffer's Daily Market Blog Features Citigroup, Eaton,
Bookham, Great Atlantic & Pacific Tea Company, and Elan
CINCINNATI--(BUSINESS WIRE)--April 17, 2006 Among the stocks featured in the April 17th edition of Schaeffer's Market Blog are Citigroup (NYSE:C), Eaton (NYSE:ETN), Bookham (NASDAQ:BKHM), Great Atlantic & Pacific Tea Company (NYSE:GAP), and Elan (NYSE:ELN). Schaeffer's Market Blog is just one of the many free market commentaries written everyday at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. The Market Blog is written throughout every trading day by Schaeffer's financial analysts and traders. They are quick insights to the day's most notable market activity from an options perspective. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PROB12M&PAGE=1 .
Schaeffer's Market Blog for Monday, April 17, 2006:
Below are just a few of today's Market Blog entries. Click here to read all of today's Market Blog. http://www.schaeffersresearch.com/redirect.aspx?CODE=PROB1C&PAGE=1 .
9:47 AM Citigroup Posts First-Quarter Earnings
This morning, Citigroup (NYSE:C), announced first-quarter income that came in four percent higher. The company's earnings of $1.12 per share ($5.64 billion) were driven higher thanks to strong results in global consumer banking and corporate investment banking operations. Analysts expected earnings of $1.02 per share for the quarter. Analysts at Morgan Stanley noted that the "upside (was) driven by (a) strong top line in investment banking and low consumer provisions due to low bankruptcy run rate." C's revenue increased from $21.2 billion last year to $22.18 billion this year, an increase of five percent. The analysts did caution that apparently negative operating leverage numbers could pressure the shares a bit this morning.
C's revenues declined in its consumer lending business, despite growth of 18 percent in average loans. This growth was counteracted by net interest margin compression across the loan portfolios. The banks stated that revenue dropped in the consumer lending business as well.
The first tick for C this morning is a positive one, pushing the company more than 0.50 percent higher. This morning's gap higher was stifled at the 48.50 level, which capped the shares earlier this month.
11:15 AM Eaton Tops the Consensus Estimate
Earnings news propelled Eaton (NYSE:ETN) to a new all-time high earlier this morning. The company announced that its first-quarter net income increased to $1.36 per share ($208 million). The company announced that income excluding charges came in at $1.40 per share, or $214 million. According to Thomson First Call, the consensus estimate stood at $1.32 per share. The company's revenue increased 14 percent to come in at $3.01 billion during the quarter. ETN's sales grew nine percent, acquisition sales added another six percent; however, this was offset by a decline of one percent from lower exchange rates. The firm also forecast second-quarter income of $1.50 to $1.60, but earnings excluding acquisition charges should fall between $1.55 and $1.65 per share. The consensus estimate stands at $1.61 per share. Finally, ETN raised its 2006 net income and earnings outlook to ranges of $5.90 and $6.20 per share and $6.10 to $6.41 per share, an increase of 15 cents per share.
This news sent the shares to an all-time high of $77.10 earlier this morning, but they have slipped back below the 76 level. It does appear that the shares are finding a bit of support at the 75 level. This region capped the shares for the better part of April, and could now relish its new role as support.
12:29 PM Bookham Plunges
So many people want to look at the companies that are performing well, but my eyes were drawn to the 24-percent drop by Bookham (NASDAQ:BKHM) so far today. The company slumped after forecasting gross margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the third quarter to fall short of its original forecast. BKHM now expects gross margin of 10 to 12 percent with an adjusted EBITDA loss of $10 million to $12 million. Previously, BKHM expected gross margin of 23 to 27 percent with adjusted EBITDA between $1 million and a loss of $3 million. BKHM blamed the lower-than-expected forecast on the unfavorable product mix and lower semiconductor production volumes. Merriman Curhan Ford downgraded BKHM to "neutral" from "buy" thanks to this unfavorable forecast.
That's a sizeable loss that the company has posted today. What should be more of a concern is the fact that the shares slipped below the support of their 10-week and 20-week moving averages. The last time the equity closed out a week below this support was March 2005. BKHM could find support at its 50-day moving average. This trendline is pointed higher and recently completed a bullish cross of its 80-day moving average. This technical formation often hints that further bullish performance is on the way.
1:01 PM Call Options Swell on Great Atlantic & Pacific Tea Company
Grocery-store name Great Atlantic & Pacific Tea Company (NYSE: GAP) is currently on the CBOE's list of most-active call options today, as more than 11,600 contracts have changed hands on the in-the-money May 25 call (GAP EE). Prior to today, this soon-to-be-front-month position was home to exactly zero open contracts. GAP's April 22.75 call (GAP DQ) and its May 22.75 call (GAP EQ) have also seen notable volume today, so it is possible that options traders are rolling out their existing positions to a different strike.
Checking out the transaction data, GAP EE has seen three large blocks trade this morning, all of which were executed with a "spread" designation. Tomorrow's open-interest translations and implied-volatility changes will better reveal what strikes saw liquidations.
Technically speaking, GAP was on the rise during the past two months until plunging nearly 20 percent last Thursday after CIBC reduced its price target to $30 from $37. This move took the stock below long-term support at its 10-month moving average, below which the shares have not endured a monthly close since October 2004.
2:05 PM Call Options Trading Actively on Elan
Options activity on Elan (NYSE:ELN) has been heavily skewed toward the call side of the spectrum over the past couple of days. In fact call option volume on the equity has been running around 10 times respective put volume over the past two trading sessions. The shares have been consolidating around their uptrending 80-day moving average, and technically look poised for a move to the upside. Nevertheless, over-optimism regarding such a breakout may leave the shares out to dry.
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