Morning Market Update: Thursday, March 10, 2011
Early Edge: Molycorp, Intuitive Surgical, Human Genome Sciences, and Valero Energy
MCP predicted ‘robust’ pricing for rare earth minerals
by Elizabeth Harrow (eharrow@sir-inc.com) 3/10/2011 9:18 AM
Today’s column includes an unexpected fourth-quarter profit from Molycorp, Inc. (MCP), a bullish brokerage note for Intuitive Surgical, Inc. (ISRG), a highly anticipated FDA ruling for Human Genome Sciences (HGSI), and rumors of a potential U.K. refinery deal for Valero Energy Corporation (VLO).
Molycorp
Molycorp, Inc. (MCP) reported last night that it swallowed a fourth-quarter net loss of $7.9 million, or 10 cents per share — improved from its year-ago deficit of $9.1 million, or 22 cents per share. Excluding one-time items, MCP earned 3 cents per share. Revenue for the period skyrocketed to $21.7 million from $2.2 million on a year-over-year basis. The results topped analysts’ expectations, which called for a quarterly loss of 7 cents per share.
“Rising demand and reduced Chinese exports have created extraordinarily tight market conditions,” explained President and CEO Mark Smith in a statement. “This gap in supply and demand is expected to worsen in 2011… These dynamics are why we believe rare earth pricing will remain robust for the foreseeable future.”
MCP is up 0.8% ahead of the open, with the equity attempting to reclaim a foothold above former support at its 50-day moving average. Since breaching this technical floor on Feb. 18, MCP has managed only four daily closes above this trendline.
A flurry of short-selling activity has also kept MCP under pressure lately. Short interest on the shares rose by 16.3% during the past month, and these pessimistic positions now account for 21.9% of the equity’s float.
Intuitive Surgical
Intuitive Surgical, Inc. (ISRG) earned a bullish brokerage note bright and early this morning, when Collins Stewart started coverage of the stock with a “buy” rating and $400 price target. The new target implies expected upside of more than 21% from Wednesday’s close at $330.21. Analysts are pretty evenly split on ISRG, with Zacks reporting seven “buy” or better ratings and seven lukewarm “holds.”
Despite the upbeat analyst note, ISRG is fractionally lower in electronic trading. The shares are lingering just shy of the $330 region, near the midpoint of their recent trading range between $320 and $340. This sideways channel has confined the stock since late January.
Apparently, options players are betting on ISRG to break out to the downside. During the past 10 days, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 2.54 puts for every call on ISRG. This ratio ranks higher than 99.6% of other such readings taken during the previous year, as options players have rarely purchased bearish bets over bullish at a faster pace.
Human Genome Sciences
Look for Human Genome Sciences (HGSI) to attract some serious attention on Wall Street today, after the Food and Drug Administration (FDA) approved the company’s experimental lupus drug. Benlysta, which was developed in concert with GlaxoSmithKline (GSK), is expected to be available to patients “within about two weeks,” according to a joint statement. The freshly approved drug is the first new treatment for systemic lupus in more than 50 years.
HGSI is poised to gap higher at the open, with the shares adding more than 10% in pre-market action. This jump will propel HGSI above recent pressure in the $27-$27.50 neighborhood, which has limited the equity’s progress since mid-October.
Options have been unusually active on HGSI during the past week, as traders braced themselves for the impending FDA ruling. Apparently, today’s good news might catch some speculators off-guard. HGSI’s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.61 arrives in the 72nd annual percentile, revealing a moderate bias toward pessimistically oriented options.
Valero Energy
Valero Energy Corporation (VLO) is reportedly in talks to acquire a U.K. refinery from Chevron (CVX), according to Bloomberg. Citing sources with knowledge of the deal, the news site reports that VLO could shell out as much as $2 billion to purchase Chevron’s Pembroke refinery in Wales.
VLO is off 1.2% ahead of the open, pulling back toward support at its 10-week moving average. This trendline hasn’t been breached on a weekly closing basis since Sept. 24, 2010, and has helped usher VLO to a year-to-date gain of nearly 20%.
However, traders seem to be concerned about a potential pullback in VLO. The stock’s Schaeffer’s put/call open interest ratio (SOIR) of 0.51 rests in the 88th annual percentile, suggesting that near-term options players have been more bearishly aligned only 12% of the time during the past year.
