Chart of the Day – Earnings Preview – $TTWO At Big Long-Term Resistance

by Enis May 13, 2013 11:19 am • Commentary

Take-Two reports earnings after the close today, though the real interest in the stock is from the release of the latest game in the Grand Theft Auto franchise, which analysts expect to provide a major boost to earnings later this year.  The video game business is fickle in nature, with each major hit followed by years of waiting for the next hot release.

The resulting up and down nature of earnings can make it hard to assess the underlying value of the company.  Here is Take-Two’s EPS over the past 5 years (last row, Calendar Year EPS, is most noteworthy):

Adjusted EPS for TTWO, Courtesy of Bloomberg
Adjusted EPS for TTWO, Courtesy of Bloomberg

The release of Grand Theft Auto 4 in 2008 was the last major boost to the stock’s bottom line, and it has been a piddling stock ever since.  But with GTA 5’s release approaching later this year, TTWO has inched towards 5 year highs, on the cusp of an important breakout:

5 year weekly chart of TTWO, Courtesy of Bloomberg
5 year weekly chart of TTWO, Courtesy of Bloomberg

The 17.50 level has been important resistance throughout the past 5 years.  The question mark in my mind is whether enthusiasm for GTA 5 will be enough to push the stock through that important long-term level.

For earnings tonight, here is a quick cheat sheet:

Implied Move:  The options market is implying about a 9% move vs the 4 qtr avg move of ~8.5% and the 8 qtr avg move of ~6%.

Sentiment:  Wall Street analysts are somewhat positive on the stock with 12 Buys, 5 Holds and 1 Sell, though the avg 12 month price target is only ~$17.30.  Short interest is around 20% of the float, though that’s at the lower end of the past 12 months.

Options Volumes / Open Interest:  Options open interest has been skewed towards calls for some time now, currently at 1.6 to 1, calls to puts.  Recent options volumes have been similar skewed to calls, with the highest open interest at the June 16 call line, around 10k.

Vol Snapshot: Vol has been climbing into the earnings event, but is more subdued than I would expect given the long-awaited release of GTA 5 later in the year. Here’s a look at the 2 year IV30 (red) vs HV30 (blue):

Screen Shot 2013-05-13 at 9.14.12 AM
from LiveVol Pro

As you can see IV is not nearly to the levels it has reached during recent earnings cycles. May vol is in the 90s and June is low 40’s. June should come into he low 30’s following the report.