Event: PCLN reports their fiscal Q2 earnings on August 8th after the close. The options market is implying about a 6% one day move, which is below both the 4 qtr avg of about 8% and the 8 qtr avg of about 7.75%.
Sentiment: Wall Street analysts are very positive on the stock, with 27 Buys, 3 Holds and 0 Sells, though the 12 month price target is only $960 given the stock’s near 50% appreciation year-to-date. Short interest is around 6% of float, little changed in the past year.
Options Open Interest: Open interest is evenly split between calls and puts, and the volume over the last month is also evenly split between calls and puts. Nearby strikes with the most open interest include the Aug16th 955 and 960 calls, and the Aug16th 900 puts.
Price Action / Technicals: PCLN has been a huge winner during this bull market. The stock is worth more than 20x what it was worth at its October 2008 lows, and even more than 4.5x what it was worth at its summer 2010 lows. It is a chart that indicates incremental moves higher and then consolidation:[caption id="attachment_28971" align="alignnone" width="649"] Weekly chart of PCLN, 100 week ma in green, Courtesy of Bloomberg[/caption]
The long-term support is now around the April 2012 high around $775. In the short-run, there is not really any resistance on the upside as the stock is near all-time highs. On the downside, the $850 level is the May high that coincides with the rising 50 day ma:[caption id="attachment_28972" align="alignnone" width="644"] PCLN daily, 50 day ma in pink, Courtesy of Bloomberg[/caption]
Fundamentals: Though PCLN’s stock move higher has been an amazing run, the company has actually been growing earnings at a blistering place to justify the stock’s move (a rare occurrence in this market). The trailing 12 month P/E is in the same place it was in mid-2010, mid-2011 and mid-2012, right around 30:[caption id="attachment_28973" align="alignnone" width="500"] 5 year chart of trailing 12 month P/E in PCLN, Courtesy of Bloomberg[/caption]
Last week’s earnings disappointment from online travel peer EXPE, and the downbeat commentary regarding European travel trends are likely weighing a bit on sentiment in front of PCLN’s results, but JPM had the following to say on the topic in a note to clients dated Aug 5th, 2013:
We believe many of the issues Expedia saw in 2Q were company specific. Priceline likely capitalized on Expedia’s pull-back from TripAdvisor, and continued to press Express Deals in the U.S. along with greater marketing spend. We are incorporating Kayak into our estimates and on the call we look for management commentary on Kayak’s growth profile and global expansion strategy. While competitive dynamics are driving increased sales and marketing spend across the OTA space, we are optimistic on Priceline’s ability to drive higher bookings growth that offset margin pressures, and expense comps turn more favorable in 2H13.
Volatility: Vol has been drifting higher into the event but each event recently has seen slightly lower vol than the last. This has mostly to do with the fact that the stock is so high from a dollar perspective and the likelihood of big percentage moves decreases with higher priced stocks due to psychology. You can see this reflected in the actual volatility (blue) in the below chart as it tends to be below the IV (red) normally. Sept vol is above 30 and will likely go to the low 20’s following the event:
Trades: Stay tuned for our thoughts on potential trade structures that we’ll be posting tomorrow ahead of the event.