Event: PCLN reports fiscal Q2 earnings tonight after the close. The options market is implying about a 7% move, vs. the 4 qtr avg move of 7.5% and the 8 qtr avg move of about 9%.
Sentiment: Wall Street analysts are generally positive on the stock with 21 Buys, 4 Holds and no Sells, with an avg 12 month price target of about $795. The stock has had relatively stable short interest around 6% of float
Price Action: Stock had a huge start to the year, and is up more than 45% ytd, despite trading more than 10% below its April high close to $775, which happened to be a 10 year high for PCLN (all time high is 990, 2 months after its IPO in 1999)
Techncials: PCLN broke out above $550 at the start of this year after a year-long consolidation pattern that saw the stock trade between 400 and 550:
Since that breakout, the stock has remained above its previous consolidation range, indicating a long-term uptrend that remains intact. However, the shorter term picture is more muddied, with 600 important support and 775 the prior high as resistance.
Fundamentals: PCLN has been quite consistent in beating earnings estimates over the past 3 years, as it has not missed consensus estimates since June 2008. This consistency has been particularly impressive given that PCLN derives more than 50% of their revenues from Europe (though primarily the Netherlands and the U.K., so very little peripheral European exposure). Those 2 countries have been their primary growth drivers, so the Q3 outlook will be just as important as the Q2 number as investors look for an Olympics-aided boost in Q3. 2013 and 2014 EPS growth projections from analysts are around 25%. EXPE’s strong report in late July could portend a strong quarter from PCLN as well, with EXPE at all time highs.
Volatility:
Implied vol in the Aug10 weeklies stands at about 94, producing an ATM straddle of about 50 dollars. The Implied vol overall is near the upper range of where it historically trades but not uncommon going into an earnings event:
- PCLN IV vs HV from LiveVol Pro
September at the money vol is about 45, and will likely go to low 30’s following the event, barring any massive moves in the underlying.
Earnings Expectations:
Q2: EPS=7.36, Revs=1.35 b
Q3: EPS=12.79, Revs=1.80 b (Q3 seasonally their strongest quarter)
2012: EPS= 31.37, Revs= 5.43 b
MY VIEW:
The setup into PCLN earnings looks bullish, mainly based on the strong quarter and commentary from Expedia and the fact that the stock’s move likely hinges on commentary regarding Q3 guidance, which will include the Olympics in Europe. However, the implied move of 7% means that it’s hard to play for this type of move with just long premium bets, unless you think the stock is due for an imminent retest of the Apr highs at 775. We looked at a call calendar as a potential trade here, but EXPE’s move on earnings has us on guard for a blowout quarter. We’re still looking at trade ideas, but nothing that we’re taking action on right now.