Yesterday JDSU got caught up in that FNSR downgrade. One analyst lowered his price target from $33 to $30 on FNSR. So, of course, JDSU goes down too.
Before earnings JDSU was trading roughly at $12. Today it's trading at $13.61. So, it's up 13.3% in the last 3 weeks.
Think about what's happened since Oct 30. They had decent earnings on Oct 30, but guided to $420 -$440 million when the street wanted $453 million. They came closer to the $453 million this past quarter than anyone might have thought. EPS was OK too. And in October it traded above $16.50 a week or so before earnings. So, it gets a 25% haircut when they actually didn't do all that bad in the past two earnings reports.
I wonder what the stock price would be if they guided a little higher last October. That seemed to be the catalyst causing this miserable down draft.
This was true even earlier this time. Look at how strong JDSU was relative to the market yesterday. And today, well it would have been tough to chase.
One week prior to earnings JDSU already started going down. In the morning it was trading around 14.75. I can't remember where it ended up. Once earnings were released it was quickly trading in the high to mid $13s in the AHs.
That's why I've found it extremely tough to trade JDSU immediately after the earnings are released. They have a good earnings report, then tank guidance and the stock goes up and then drops. Or they have weak earnings and slightly positive guidance and the stock goes way down, then recovers, then goes back down about halfway from the initial low. Or they have decent earnings and guidance and the stock goes up, but then the negative tone of the overall market takes it down the next day. Or they have decent earnings and guidance and get a few days of a rally, then one of its' competitors says something negative and JDSU goes down more than the company talking about the problem.
One other point I've learned with JDSU's earnings reports...The initial reaction is often in the opposite direction of where it will be 10 minutes later. It's a lot like the market's reaction to the Fed.
The trick with JDSU is that you won't get a chance to cover your short at $12.80. The same holds true if you were long and had a stop at 11.80. Over the next week, it will likely wander between the high 11s and low 12s, then next Thursday after the market closes it will gap up or down so fast you won;t be able to react to it. I've always found you need to be positioned ahead of the earnings release.
I don't think the stock price would go down on $438 million in revenue. JDSU has already gone down 25% from the last earnings call, so hitting the high end of the range could actually cause it to go up. Obviously, next quarter's guidance will be a key factor in how the stock price reacts.
For the last several quarters I've found it really hard to know how the stock price will react to the earnings report. When you see the numbers crossing the screen, you think the stock should be going one way, but it goes the other way. If I recall correctly, that's what happened last May.
Back in late October when JDSU reported last quarter's earnings, the numbers weren't too bad. The catch was this quarter's guidance. The street wanted $453 million and JDSU guided between $420 and $440 million. FYI: The sell off actually started a week or so before the earnings report.
In mid December Stifel Nicolaus targeted JDSU's revenue for this quarter at $438 million with EPS of $0.15.
The stock price action since late October has been awful. It's just like being seasick with 4 foot waves - a little up, a little down. Back and forth with no clear price action.
It will be good to get this earnings report out of the way and let the stock price finally go up or down.
That divergence has been quite unsettling - especially last summer when FNSR and CIEN ran much higher and JDSU stalled.
Here's another fact from mid December...Stifel Nicolaus raised their estimates for next quarter to $438 mil and 15 EPS. So, if JDSU had a $420 to $440 range, at least Stifel Nicolaus estimates revenues at the higher end of the range.
FNSR was trading above $26 at the end of October. It went below $20 in early December. So, using the real values ($26.36 and $19.62) it's had a 25.6% pullback. They also did a $225 mil convertible a week or so ago, so they have they also have that in common with JDSU. I know a lot of shorts like those convertibles.