Today's column includes a mixed second-quarter report from Exxon Mobil Corporation (XOM), increased M&A speculation for Genzyme Corporation (GENZ), post-earnings price-target cuts for Visa Inc. (V), and a newly struck CDO deal for Zions Bancorporation (ZION). Each day, Early Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.
Exxon Mobil Corporation
Exxon Mobil Corporation (XOM) took the earnings stage this morning, with the oil major reporting a second-quarter profit of $7.56 billion, or $1.60 per share, up 91% from its year-ago results. Analysts were anticipating a slightly less robust quarterly profit of $1.46 per share. Revenue for the period climbed 24%, but fell short of Wall Street's consensus expectations for $98.49 billion.
Oil and gas output increased 8% for the quarter, and results were also boosted by a 30% year-over-year jump in crude oil prices. XOM's downstream business also flourished, with its refining unit raking in a stronger-than-forecast profit of $1.22 billion, compared to its year-ago earnings of $512 million.
XOM has added 0.6% in pre-market trading, but the stock is sitting on a year-to-date deficit of nearly 11%. Today's stronger-than-forecast profits could give the shares a chance to challenge resistance from their 80-day and 200-day moving averages.
Ahead of this morning's report, traders on Wednesday placed their bets on an upside surprise. The equity's August 62.50 call saw 17,938 contracts change hands, with 65% trading at the ask price -- indicating they were purchased. Open interest climbed by 4,410 contracts overnight, confirming that new bullish bets were opened here on Wednesday.
Genzyme Corporation
Speculation is heating up about a potential buyout bid for Genzyme Corporation (GENZ). People familiar with the matter told The Wall Street Journal that Sanofi-Aventis (SNY) is likely to launch a formal bid to Genzyme's board in the next several days, with the proposed bid reportedly valued around $70 to $75 per share. However, Sanofi-Aventis CEO Chris Viehbacher declined to comment on buyout rumors.
GENZ is up nearly 5% ahead of the bell, adding to its 2010 gains of 38.7%. The stock has bolted higher lately in the wake of increased merger-and-acquisition speculation, with the shares lingering near $68 for the past several sessions.
Options players have responded to the rumors by loading up on calls. During the past 10 days, traders on the International Securities Exchange (ISE) bought to open 4.79 calls for every put on GENZ. This ratio ranks higher than 91% of other such readings taken during the past year, marking a near-peak of bullishly biased option buying.
Visa Inc.
Visa Inc. (V) unveiled its third-quarter results last night, with the credit card concern announcing a profit of $729 million, or 97 cents per share. Analysts were looking for a slimmer per-share profit of 93 cents. Meanwhile, revenue for the quarter rose 23% year-over-year to $2 billion. CEO Joseph Saunders added that the newly passed Dodd Frank law will not begin to affect Visa's business "until this time next year. I expect the impact will be modest and contained to our fourth fiscal quarter" of 2011.
V has dipped fractionally lower in electronic trading, as analysts at Citigroup, KBW, and Baird have stepped up to slash their price targets on the stock this morning. As a result, V seems unlikely to break out from its short-term trading range between $70 and $80, which has contained the equity's movements since mid-May.
Traders adopted a mildly downbeat stance ahead of V's quarterly report. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.83 rests in the 71st annual percentile, pointing to elevated skepticism among short-term speculators. Indeed, the stock's out-of-the-money September 65 put experienced the largest open interest increase overnight, with this strike gaining 2,175 contracts as a result of Wednesday's trading.
Zions Bancorporation
Late Wednesday, Zions Bancorporation (ZION) said it struck a deal with Deutsche Bank AG (DB) to unload a $1.16 billion portfolio of risky collateralized debt obligations (CDOs). "Deutsche Bank will assume all of the credit risk of this CDO portfolio, providing timely payment of all interest and principal when contractually due to the company," explained Zions. The regional bank will incur a cost of roughly $35 million during the first year of the deal, with most of the impact hitting the fiscal third quarter of 2010.
ZION is up roughly 2% in pre-market action, extending its year-to-date gain of nearly 66%. The stock recently rebounded from support at its 200-day moving average, and is now poised to reclaim a foothold atop its 32-week trendline.
However, speculative investors seem unimpressed by ZION. The equity's 10-day ISE put/call volume ratio of 3.72 points to a healthy appetite for pessimistic positions, and this ratio ranks in the 85th annual percentile -- indicating that traders have purchased puts over calls at a faster clip only 15% of the time during the past year.
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