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Previewing 5 Stocks Set To Report Earnings For The Week of July 9

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MICHAEL KRAMER OWN XLF PUTS

Believe it or not, it’s earnings season again, with the banks set to kick it off on Friday, followed by Netflix on Monday, July 16. Citigroup, JP Morgan, and Wells Fargo will all report, and it will be a reasonably significant earnings season for these banks given the poor stock performance over the past couple of weeks. It will be the deciding factor as to whether they continue their current trend lower, or the stocks finally start pushing higher.

JPM data by YCharts

 

JP Morgan

Analysts are looking for JP Morgan to report earnings growth of 29.9 percent to $2.22 per share, while revenue is seen climbing by just 6.6 percent to $27.15 billion. The options market set for expiration on July 20, are implying that the stock rises or falls by about 3.4 percent from the $105 strike price placing the stock in a trading range of $101.50 to $108.50. Open interest levels are even with 8,300 open call contracts to 8,000 open put contracts. It tells us options traders are uncertain about the given direction of shares following results. But also, they are not looking for a significant move after the company reports results.

Citigroup

Citigroup is expected to say that earnings grew by 22 percent in the second quarter to $1.56 per share, while revenue is seen climbing by about 3.7 percent to $18.56 billion. The options for expiration on July 20 are implying the stock rises or falls by 3.6 percent from the $67.5 strike price, placing the stock in a trading range of $65.00 to $70.00. But the number of put contracts outweigh the call options with 31,000 open contracts, while the calls have an open interest of 23,000 contracts. Like JP Morgan, the options market is implying low levels volatility when Citigroup reports, but unlike JP Morgan, the bets appear to suggest that traders are looking for the stock to fall.

Wells Fargo

Wells Fargo is expected to report that earnings rose by only 9 percent to $1.12, while revenue is supposed to have dropped by 2 percent to $21.7 billion. The options for expiration on July 20, are implying shares of Wells rise or fall by 3.5 percent, placing the stock in a trading range of $54 to $58 from the $56 strike price. The number of calls outweighs the puts, with 5,600 open call contracts to only 2,000 open put contracts, suggesting shares are expected to rise after results.

Banks

When looking at the banks together, it would seem none of them are expected to have a big price swing, and strong earnings growth is widely expected. I think more important for these banks will be the forward-looking guidance and any indication they might give about the environment for the balance of the year. Particularly around their lending, and the impact the flattening yield curve may be having.

The yield curve has flattened materially since the end of the first quarter, being nearly cut in half, with the spread dropping from 47 bps to just 29 bps. As I have been writing for several weeks, I think that at this point the flattening curve is the most significant risk to these banks and is ultimately driving their direction lower. But perhaps the conference call can reveal something that the market is missing.

Ultimately, we want the banks to rise because let’s face it they are a massive component to the indices, and if the banks are falling it makes it that much harder for the broader stock market to rise going forward.

10-2 Year Treasury Yield Spread data by YCharts

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Taiwan Semi

Another big company to report results will be Taiwan Semi, remember the havoc this stock caused last quarter, sparking all sorts of concerns around Apple and its supply chain. Analysts have been slashing their forecast for this company over the past 30 days, with earnings estimates dropping by 15 percent. The estimates are now calling for earnings to climb by 11 percent to $0.47 while revenue is expected to rise by 7 percent to $7.52 billion. Options are pricing in a rise or fall of about 5 percent from the $38 strike price, for expiration on July 20, placing the stock in a trading range between $36.10 to $39.90, with the puts and calls reasonably even at 1500 open calls to 2000 open puts. Again, it will be the commentary and the guidance that may matter most.

TSM EPS Estimates for Current Quarter data by YCharts

 

Pepsi

Finally, Pepsi will be another one to watch, but because I want to hear about the potential of any impact the dollar may have had on the quarter. In the first quarter, the company reported revenue growth of 4 percent, with currency boosting revenue by 2 percent. Meanwhile, EPS grew by 3 percent, while the dollar boosted results by 2 percent. But the dollar has strengthened significantly since the end of the first quarter, and that may hurt some of the benefits the company saw last quarter. Remember in the first quarter of 2017 the Dollar index was 103, while it was at 89 in the first quarter of 2018. But the comps for the second quarter come closer together with the dollar index in the mid-90’s in the second quarter of 2017 and in the low 90’s this quarter, resulting in a negative impact on Pepsi results.

Pepsi’s results are likely to weigh heavily on many of the consumer staples and multi-nationals.

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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

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