Shares of security software concern McAfee Inc. (NYSE: MFE, Stock Forum) have been far from impressive this year. The stock has underperformed the struggling S&P 500 Index (SPX) by roughly 17% on a relative-strength basis during the past 60 trading days. What's more, MFE is sitting on a year-to-date loss of more than 20%, versus the SPX's decline of about 2%. The security is even a laggard within the software sector, as the Software Holders Trust (SWH) is only off about 8% since the start of 2010.
What's more, the company's fundamental performance has been equally disappointing. On April 29, McAfee posted a profit of 60 cents, excluding items, as revenue came in at $502.7 million. Analysts were looking for earnings of 63 cents per share on revenue of $513 million. The company also guided to second-quarter earnings of 58-62 cents per share, well below expectations for a profit of 66 cents per share.
Technically speaking, the shares gapped more than 12% lower following the report, breaching former long-term support in the 35 region in the process. Currently, MFE is rebounding from support near the 31 level, with the shares edging above short-term technical resistance near the 33 level in today's trading.
However, the equity is still staring up at the 34 level, which provided support immediately after MFE's post-earnings plunge, as well as the aforementioned 35 level. What's more, the stock's 10-week moving average is also descending into the region, and could create additional downward pressure on the shares.
Despite these poor technical and fundamental performances, options players are extremely optimistic. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.34 indicates that calls nearly triple puts among near-term options. This ratio also sits just three percentage points shy of an annual low. In other words, options traders have rarely been more bullishly aligned toward MFE during the past year.
The International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have also seen an uptick in call trading. During the past 10 trading sessions, calls bought to open have more than doubled puts purchased, as MFE's 10-day ISE/CBOE call/put volume ratio arrives at a reading of 2.33.
Even Wall Street is smitten with the shares, as 20 of the 27 analysts following MFE rate it a "buy" or better, while not one gives it a "sell" rating. Meanwhile, Thomson Reuters reports that the consensus 12-month price target for MFE rests at $42 per share - a 27% premium to the stock's current trading range near $33 per share. This configuration leaves ample room for potential downgrades and/or price-target cuts that could create significant downward pressure on the stock.
Disclosure: Joseph Hargett has no financial interest in any of the equities or products mentioned in this column.