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Michael Kramer and the clients of Mott Capital own Microsoft
The week of April 24 will be a monster week for earnings with some of the biggest companies reporting results. So here we go with the top 4 predictions.
Amazon will report results on Thursday, April 25 after the close of trading. Analysts forecast first quarter revenue rose by 17% to $59.73 billion, while earnings jumped 44.5% to $4.72. There are many uncertainties around this quarter. The company already told us last quarter they would be spending more this year, but how much? Does it cause the company to miss earnings estimates?
Additionally, the company has missed revenue estimates two of the last three quarters. Amazon may not be a slam dunk this quarter. As with every quarter, it will come down to AWS.
The options for expiration on April 26 suggest the stock rises or falls about 5% following results, from the $1860 strike price. It places the stock in a trading range of $1,778 to $1,941 by the end of the week. But the puts outweigh the calls by 3 to 1, with 1,540 open puts to just 530 calls. Consider the puts cost about $39.25 per contract, and that means the open interest is worth about $6 million, no small wager.
The chart is bullish, showing the stock recently rose above resistance at $1850. The RSI is trending higher too despite being in overbought territory
Prediction: I think the company will meet on the top and miss on the bottom line. It will result in a knee jerk reaction lower towards support at $1,770.
Intel will report results on Thursday too; analysts see no earnings growth at $0.87, and no revenue growth of $16 billion. It will be Bob Swans first quarter as the official CEO, and I’ll bet he issues conservative guidance.
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The options for expiration on April 26 suggest that stock rises or falls 4.5% from the $58 strike price. It places the stock in a trading range between $55.35 and $60.65. The puts and the calls are even, with 1,700 open calls to 1,100 open puts, making it a push.
The chart shows a gap that may need to be refilled at $57.20
Prediction: I think the company issues conservative guidance and that cause the stock to fall back to that support level at $57.
Facebook reports on Wednesday, April 24 after the close. Analysts estimate that the company will see earnings fall 3% to $1.63, while revenue grew by 25% to $14.97 billion. Facebook also likely delivers revenue that meets expectations but crushes estimates on the bottom line. Facebook has topped earnings estimates eight quarters in a row.
The options that expire on April 26 show the stock rises are falls 6% from the $180 strike price. It places the stock in a trading range of $169 to $190 by expiration. But the calls outweigh the puts by a ratio of nearly 3 to 1, with 11,000 open calls to just 4,000 open puts, suggesting shares rise. The dollar value of the open call contracts is around $5 million, a big wager.
The chart for Facebook is bullish, and the RSI suggests the shares can continue to rise as well.
Prediction: Facebook will crush earnings estimates, saying that costs weren’t as high as initially expected. It will result in the stock breaking out and rising toward $194.
Microsoft will also report on Wednesday afternoon too, and analysts see the company’s earnings growing 5% to $1.00 per share, while revenue is forecast to have grown 11% to $29.86 billion. For the company, the focus will continue to be on cloud growth and Azure.
Options for expiration on April 26 suggests the stock rises or falls just 3% from $123 price, placing it in a range of $118.50 to $127.50. However, the calls outweigh the puts by a ratio of 50 to 1, with 3,000 open calls to just 65 put contracts. The value of the calls is small at $750,000 which suggest a lack of conviction.
The chart suggests a blow-off rally to around $127, which may result in a period of consolidation in the weeks to follow.
Prediction: Microsoft delivers strong result and shares rise to around $127 following results.
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 results.