Earnings Season Heats Up Again
In The Week Ahead!
by Ian Harvey
September 18, 2017
Earnings predictions for the week beginning September 18, 2017
-- profit from the start of earnings season! --
Q2 earnings season was strong across the board, as broad-based growth reached the double digit levels for the second quarter in a row. These first reports could set the trend for the upcoming Q3 season, so investors will want to keep a close eye on the companies reporting soon.
Several highly anticipated earnings reports
are scheduled for the next few trading days. Here's what investors will be
looking for when AutoZone (NYSE: AZO), Adobe
Systems Incorporated (NASDAQ:ADBE), Bed Bath & Beyond Inc. (NASDAQ:BBBY), General
Mills, Inc. (NYSE:GIS), FedEx (NYSE: FDX), and CarMax (NYSE:
KMX) announce their latest business results.
Options Trades to Consider Based on Expected Earnings Reports:
Tuesday, September 19
Adobe Systems Incorporated (NASDAQ:ADBE) -- reports after the market's close, with the software company expected to earn $1.00 per share on $1.81 billion in revenues, representing year-over-year growth rates of +34% and +23.9%, respectively. The stock has been an impressive performer this year, up +50.2% year-to-date, outperforming the S&P 500 index's +11.6% gain. The stock was up following each of the last two quarters as it beat top- and bottom-line estimates.
Option trade to consider: Buy the ADBE OCT 20 2017 160.000 CALL at approximately $2.60.
Bed Bath & Beyond Inc. (NASDAQ:BBBY) -- reports after the market's close, and the consensus earnings estimate is $0.95 per share on revenue of $3.01 billion. Investor sentiment going into the company's earnings release is only 31% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 14.41% with revenue increasing by 0.73%. Short interest has increased by 29.6% since the company's last earnings release while the stock has drifted lower by 4.8% from its open following the earnings release to be 21.5% below its 200 day moving average of $36.51. Overall earnings estimates have been revised lower since the company's last earnings release.
Bed Bath & Beyond has been reeling under sluggish mall traffic, which has been hurting performance for quite some time. Also, increased net direct-to-consumer shipping costs along with higher coupon and advertising costs are hurting results.
Consequently, the company has put up a dismal show for the last several quarters.
As well, management retained previously issued dismal bottom-line outlook for fiscal 2017, as it expects better visibility after the fiscal second quarter. Thus, the company continues to envision current-year earnings per share to decline in the range of low-single digits percentage to 10%. However, it continues to anticipate gross margin decline in fiscal 2017, alongside SG&A deleverage due to payroll and payroll-related expenses as well as technology expenses.
Option trade to consider: Buy the BBBY OCT 20 2017 27.500 PUT at approximately $1.50.
Wednesday, September 20
General Mills, Inc. (NYSE:GIS)-- reports quarterly results before the market's open, with the cereal maker expected to earn $0.77 per share on $3.79 billion in revenues, representing year-over-year declines of -1.7% and -3%, respectively. General Mills shares have lagged the peer group as well as the broader market this year, with the stock down -10.1% in the year-to-date period.
Almost all of its peers including Conagra Brands (CAG), J.M. Smucker (SJM), Kraft Heinz (KHC), and Kellogg (K) are also witnessing similar trends and have reported sales declines in the past several quarters.
General Mills’ sales are likely to be impacted by sluggish volumes in the North American market. The region is the company’s largest business segment and accounts for the majority of sales. Moreover, soft industry trends and the company’s planned cut back on promotions could hurt the sales growth rate. Moreover, currency headwinds, especially in its European business, will continue to remain a drag.
Option trade to consider: Buy the GIS OCT 20 2017 55.000 PUT at approximately $0.85.
Friday, September 22
CarMax, Inc. (NYSE:KMX) -- is expected to report its second quarter numbers before the market open on Friday, September 22. The consensus calls for earnings of $0.94 per share, up from $0.88 during the same period last year.
Used car sales volumes spiked 14% thanks to the powerful combination of rising customer traffic levels and improved conversion rates. Those trends helped drive comparable-store sales up a healthy 8% in the first quarter. At the same time, gross profit margin ticked higher and expenses fell, which allowed net income to soar by 21% to $212 million.
Hurricanes Harvey and Irma have caused massive devastation to Houston and the surrounding area since they made landfall recently, but the used car industry has already experienced some gains as the storm has left hundreds of thousands of cars submerged under water.
Option trade to consider: Buy the KMX OCT 20 2017 70.000 CALL at approximately $1.85.
The past week saw U.S. stocks continue to soar -- not to mention oil prices -- the Dow Jones Industrial Average (DJIA) wrapped up its best week of 2017, extending its win streak to six days and notching a record close for a fourth straight session. Not to be outdone, the S&P 500 Index (SPX) and Nasdaq Composite (COMP) tagged record highs of their own, as a tech rally overshadowed lackluster economic data.
Stock markets seemingly shrugged off escalating tensions with North Korea, which fired off another missile toward Japan, and celebrated reports of less damage than expected from Hurricane Irma. Also making noise last week were Apple's new iPhone, the Equifax saga, and a handful of drug stocks.
Looking ahead, all eyes will be on the Fed, though Janet Yellen & Co isn’t expected to raise interest rates until the December meeting.
As the market continues to run higher and higher, despite an array of potentially detrimental geopolitical and economic factors, it is important to refrain from getting too comfortable and complacent; the key-word now is “vigilance” – even though there seems to be little in the way of catalysts to de-rail the rally.
However, realizing that the market's could react in the short term to any further signs of escalation or de-escalation of the geopolitical risk, as well as the impact of the weather, will help plan for a successful and profitable week ahead.
Therefore, with the market uptrend still continuing, investors should exercise extra caution. But by learning to use call and put options, investors can significantly reduce risk and capitalize on basing stocks that are making breakaway gains caused by earnings reports.
You will notice that most options trades to consider have short-term expiry dates, as the expected movement of the option’s price should occur just prior to, or shortly after, report of earnings. It is entirely up to the individual trader as to whether they add a stop-loss or not.
Also Note: These suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
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