MorningWord 6/12/13: Here’s one that you have never read on this website, HRB. The company reports their fiscal Q4 earnings tonight after the close, and the options market is implying an almost 7.5% move vs the 4 qtr avg move of ~4.25%. Taking a look at the last 4 fiscal q4 reports, the movement tends to be a just a tad higher, with an avg move since Q4 2009 of ~4.8%.
The name caught my eye because fellow Fast Money panelist Steve Grasso highlighted the name last night as a stock he will be watching today and said something to the tune, “it goes up when they beat and it goes up when they miss”. One look at the 10 year chart (below) and it becomes apparent – the stock has been a monster in 2013, up 58% ytd and doing its best to break out to new 10 year highs.
What’s interesting to note about HRB, the tax services provider, is that the company loses money in almost every quarter aside from their fiscal Q4 that includes U.S. federal income tax day. A look below at the last 5 fiscal years and next year’s expectations demonstrates the make or break for the qtr to be reported tonight.
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Q1 Jul | -0.39 | -0.39 | -0.36 | -0.37 | -0.38 | -0.39 |
| Q2 Oct | -0.4 | -0.38 | -0.35 | -0.38 | -0.37 | -0.39 |
| Q3 Jan | 0.2 | 0.16 | 0.06 | -0.01 | -0.22 | 0.03 |
| Q4 Apr | 2.09 | 2.11 | 2.2 | 2.02 | 2.61 | 2.65 |
| Year | 1.53 | 1.52 | 1.46 | 1.26 | 1.66 | 1.88 |
| YoY Growth | 10% | -0.65% | -4% | -13.70% | 31% | 13.60% |
What also caught my eye in the name was the relatively high level of 30 day implied volatility, making new 52 week highs as realized vol remains fairly subdued.
The stock appears to check a lot of boxes for themes that have been working in 2013, decent balance sheet, high dividend yield and defensive (majority of their sales are in North America), but with the stock up so dramatically in such a short period of time it would take a fairly substantial beat and raise for the stock to break out to 10 year highs and establish a new range, especially when you consider there is not material short interest in the stock (~2% of the float.) Back in March when the company reported their fiscal Q3 (that missed expectations), the stock surged 9% making new 8 year highs at the time on Q4 guidance that exceeded analyst expectations. Make no mistake about it, expectations are running high for the make or break quarter and Q1 guidance likely to have little impact on the stock given the seasonal drop off.
As far as options activity and open interest, the most meaningful flow in the last week has been buyers of the July 32 calls. On June 4th, a trader bought blocks of 3800 and 4700 both for .50. These options had a delta in the low 20s at the time of purchase, so regardless if they were tied to stock or not, the trader was clearly looking up. Open interest is skewed to the calls with 74k vs 61k puts, and the largest single lines are 23k of the Jan14 30 calls, 20k of the Jan14 10 puts and 15k of the Jul 32 calls.
We are going to take a closer look at potential earnings trades throughout the day.