Monday, December 12, 2011

Diamond Foods (DMND) - Stock Down 70%, Then Up 50%, Now Down 20% on Accounting Investigation

DMND is trading $32.90, down 18.9% with IV30™ down 4.4%. The LIVEVOL® Pro Summary is below.


Click for Free Trial


Diamond Foods, Inc. (Diamond) is a packaged food company focused on building, acquiring and energizing brands. Diamond specializes in processing, marketing and distributing snack products and culinary, in-shell and ingredient nuts.

For those that don't know what's going on, an accounting irregularity and internal investigation has catapulted the stock down -- going from $91.91 on 9-21-2011 down to $26.55 on 12-8-2011, then back up to $40.56 on 12-9-2011 and then finally back down to ~$33 today. Here's a quick re-cap of the company's news over the last two trading days.

1. Source: Barron's via Yahoo! Finance: Diamond Foods Spikes Nearly 50% After Note, by Avi Salzman.

Keybanc analyst Akshay Jagdale wrote in a note today that he’s confident Diamond Foods’ (DMND) internal accounting investigation won’t turn up wrongdoing and will be concluded rather quickly. It was enough to send the snack food company’s shares sharply higher. In late trading, they rose 49%.


The company is investigating payments it made to walnut growers to see if they were improper. The inquiry has delayed the company’s proposed acquisition of Pringles from Procter & Gamble (PG).


2. Source: Diamond Foods, Inc Press Release via GlobeNewswire via Yahoo! Finance: Diamond Foods Provides Audit Committee Investigation Update.

Diamond Foods, Inc. today provided an update on its ongoing Audit Committee investigation into accounting for certain crop payments to walnut growers.

The Audit Committee currently anticipates being able to conclude its investigation by the middle of February, 2012. As a result of the ongoing investigation, Diamond will not file its Form 10-Q for its fiscal first quarter prior to the December 12, 2011 filing deadline. Diamond will take steps to file its Form 10-Q for the first quarter as soon as practicable after conclusion of the investigation.

Well, there you go. It does seem a bit odd that an analyst would say what s/he did (above) but the company is unable to remedy the problem until... ya know... quite a while later. The news today is essentially that the 10-Q filing date will be missed. The company does have earnings due out essentially now (or within a week) and I don't know what impact this has on that report.

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

On the stock side, I've highlighted the $90+ high reached in Sep, the gap down in Nov, and the craziness of the last two days. On the vol side we can see how well the IV30™ was priced to the HV20 -- the red line and blue line essentially moved together. In English, the option market did a wonderful job in pricing / reflecting the risk associated with the company's stock price.

As of right now, the implied is trading well below the HV20 (keep in mind the move today will be reflected in the HV20 tomorrow). In English, the option market now reflects dipping risk as the underlying has gapped over the last two days.

Let's turn to the Skew Tab.

We can see a pronounced skew diff between the front month and the back months, with the downside puts in Dec priced to over 200 vol vs an IV30™ in high double digits.

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

It is interesting to note that even with the news that there will essentially be no news until Feb, the Jan 17.5 puts are still priced at ~ $0.30 fair value and the Dec. 22.5 puts (five day puts) are priced to ~$0.20 fair value or 207 vol.

This is trade analysis, not a recommendation.

Follow Live Trades and Order Flow on Twitter: @Livevol_Pro

Legal Stuff:

No comments:

Post a Comment