Tuesday, November 22, 2011

Computer Sciences (CSC) - Stock Drops, Vol Pops After Earnings, Insider Buying and Takeover Rumors

CSC is trading $24.39, down 1.8% with IV30™ down 0.4% as of ~11:25am EST. The LIVEVOL® Pro Summary is included below.


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Computer Sciences Corporation (CSC) is engaged in the information technology (IT) and professional services industry. CSC offers an array of services to clients in the commercial and government markets and specializes in applying contemporary practices towards the employment of IT in order to achieve the strategic objectives of its customers.

CSC has had some interesting news of late, including a considerable earnings shortfall and subsequent stock drop. Let’s start with the news on 11-9-2011:

Computer Sciences Corp. shares sank Thursday after the technology services provider reported quarterly revenue below analyst expectations and lowered its forecast for the full year.

Late Wednesday, the Falls Church, Va.-based company reported a net loss of $2.88 billion, or $18.56 per share. This compares with net income of $184 million, or $1.18 per share, in the same quarter a year earlier.

Computer Sciences said the loss stemmed from two major charges it logged during the quarter — a goodwill impairment charge of $2.69 billion and a $269 million pretax charge related to a settlement with the U.S. government over a dispute of contract claims.

Excluding these one-time items and the cost of integrating a recently acquired business, the company earned 94 cents per share.
Source: AP: Computer Sciences shares fall after 2Q report

Let’s turn to the Charts Tab (6 months), below, before we get to more news. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20 - blue vs HV180 - pink).

I’ve highlighted the stock gap off of that earnings report. The day before earnings, the stock was trading $32.97. Two days after it closed at $25.24, or 23.4% lower. The stock has continued to drop since – now down 3.4% further. That stock drop has actually pushed vol higher since earnings – a good reminder that earnings reports don’t always bring a vol crush.

Let’s look to some more recent news, now. First, an article from Bloomberg, written by Ville Heiskanen.

Computer Sciences Advances on Report It May Be Buyout Target
CSC […] advanced after a report that it may be a buyout target for private-equity firms.

Private-equity firms including Blackstone Group LP (BX) and TPG Capital have studied a buyout’s feasibility and discussed financing with banks, the Wall Street Journal said today, citing people familiar with the matter.
Source: Bloomberg: Computer Sciences Advances on Report It May Be Buyout Target

In another article, Wall St. Cheat Street wrote “[r]ecent share declines may make the company a compelling value.”
Source: Mergers and Acquisitions: Computer Sciences and Cree Catch a Bid

Finally, in an article posted on Seeking Alpha, a contributor claims that CSC insider buying has increased by over 50% in the last six months. You can read that post here: http://seekingalpha.com/article/308903-5-beaten-down-stocks-with-heavy-insider-buying?source=yahoo

Hmmm. Compelling stuff.

Now let’s turn to the Skew Tab.

Keeping in mind that earnings have already passed, it’s interesting to note that the front three months show essentially identical shapes with monotonic increases in vol moving to the shorter expirations.

Finally, let’s turn to the Options Tab for completeness.

I wrote about this one for TheStreet.com(OptionsProfits), so no specific trade analysis here. I will say that the elevated vol to the downside is an interesting one to examine. It seems like (maybe) the bad news has been digested and there is some prevailing rumor(ish) good news that can keep the stock from falling too low. Considering the 52 wk high in IV30™ is 73.68, that 86 vol (or higher) in the OTM Dec puts seems... interesting. Then again, if the stock drops another $8, ummm, that would be cheap vol.

This is trade analysis, not a recommendation.

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1 comment:

  1. Thanks for sharing this great content, I really enjoyed the insign you bring to the topic, awesome stuff!