Earnings Season Underway
In The Week Ahead!
by Ian Harvey
September 25, 2017
Earnings predictions for the week beginning September 25, 2017
-- profit from the beginning of earnings season! --
CarMax (KMX), the used-car sales retailer, became the sixth S&P 500 member to report quarterly results last week.
The CarMax report showed all-around strength and momentum, as did the FedEx (FDX) release a few days before, helping the respective stocks to go higher.
However, not all of these early Q3 releases have been positive, with the Oracle (ORCL) and Adobe (ADBE) causing concerns about the near-term outlook for the cloud business, which has thus far been a stand-out growth area in the broader tech space.
There will almost be 40 companies releasing their results this week, including 9 S&P 500 members. All of these index members will be releasing their fiscal August-quarter results, which get counted as part of the Q3 tally.
By the end of this week, there will have been Q3 results from 15 such index members and the tally will have reached almost two dozen by the time the big banks put the spotlight on this reporting cycle with their earnings releases on October 12.
The handful of notable earnings due will include reports from chipmaker Micron Technology (MU) and athletic gear giant Nike (NKE) as well as highflying Red Hat (RHT) and Thor Industries (THO). As well reporting will be Carnival (CCL), FactSet, Darden (DRI), IHS Markit, Jabil Circuits, Pier 1 Imports, Actuant, Progress Software, Accenture (ACN), Conagra, KB Home, H&M, McCormick, Vail Resorts, Blackberry and RiteAid.
Total Q3 earnings are expected to be up +3% from the same period last year on +5.1% higher revenues. This would follow +11.1% earnings growth in 2017 Q2 on +5.5%, the second quarter in a row of double-digit earnings growth.
A Look Back At Last Week’s Earnings Predictions
Earnings Results for the Week Beginning September 04, 2017
|September 19, 2017||BBBY OCT 20 2017 27.500 PUT||P.P: 250%|
|September 20, 2017||GIS OCT 20 2017 55.000 PUT||P.P: 502%|
|September 22, 2017||KMX OCT 20 2017 70.000 CALL||P.P: 170%|
NOTE: P.P: – Potential Profit
Options Trades to Consider Based on Expected Earnings Reports:
Monday, September 25
Option Trade – Red Hat Inc. (NYSE:RHT) -- read article and recommended options trade -- “Option Trade – Red Hat Inc. (NYSE:RHT) Calls- Friday, September 22, 2017”
The No. 1 provider of open-source Linux software for corporate data centers reports fiscal Q2 earnings after the market closes. Analysts expect EPS growth of 22% to 67 cents, with revenue climbing nearly 17% to $699.4 million. Red Hat, similar to Microsoft (MSFT) and VMware (VMW), has aimed to leverage its existing customer base as cloud computing gains momentum. Shares are hovering near all-time highs and have grown by more than 50% this year.
Option trade to consider: Buy the RHT OCT 20 2017 110.000 CALL at approximately $2.50.
Tuesday, September 26
Carnival Corp (NYSE:CCL) - The cruise ship operator is expected to post its Q3 results before the market opens. Analysts forecast earnings of $2.20 per share, up from $1.92 during the same period last year. The stock is up 23.3% on the year.
The overall outlook remains solid despite the stock is currently giving back some of its recent gains due to the situation in the Caribbean. The stock has risen 23.3% on the year, but the P/E remains low at 16.9, which should limit too much additional downside risk. Earnings have risen 30.7% per annum over the last five years, and analysts see growth of 13.1% per annum over the next five years.
Carnival's strategy to grow beyond its familiar itineraries and capitalize on new markets is positive. The company is confident about its fiscal third-quarter results to reflect growth in China and other Asian markets as well as expansion in relatively other untapped markets like Cuba, Bermuda and Mexico.
Option trade to consider: Buy the CCL NOV 17 2017 65.000 CALL at approximately $2.00.
Darden Restaurants, Inc. (NYSE:DRI) -- The consensus earnings estimate is $0.98 per share on revenue of $1.93 billion and the Earnings Whisper number is $1.00 per share. Investor sentiment going into the company's earnings release has 73% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 11.36% with revenue increasing by 12.58%. Overall earnings estimates have been revised higher since the company's last earnings release.
Positive comps growth and costs-saving initiatives are driving Darden's bottom line and are expected to boost the fiscal first-quarter results as well. Notably, the company's earnings have surpassed the Consensus Estimate over the last 11 consecutive quarters.
Management has been focusing on improving core operating fundamentals with initiatives like simplifying kitchen systems, better in-restaurant execution to enhance guest experience, menu innovation, remodeling along with various technology-driven moves.
Most of Darden's brands have been witnessing growth over the past few quarters backed by these initiatives. Therefore, it is expected that the trend will continue in the to-be-reported quarter as well.
Option trade to consider: Buy the DRI OCT 20 2017 85.000 CALL at approximately $1.30.
Wednesday, September 27
Progress Software Corporation (NASDAQ:PRGS) -- reports fiscal Q3 earnings late Wednesday. Analysts expect the database software provider to report EPS of 47 cents, up 7% from a year earlier, with revenue falling 5% to $97.1 million.
Progress Software Corporation was upgraded by Zacks Investment Research from a “hold” rating to a “buy” rating in a report released last Friday. The firm presently has a $42.00 price target on the software maker’s stock. Zacks Investment Research‘s price target would suggest a potential upside of 12.63% from the stock’s previous close.
According to Zacks, “Progress Software Corporation is a global supplier of application development, deployment and management technology, Internet and intranet enabling technologies and support services to business, industry and government. The company’s software products and services address these challenges by increasing developer productivity, by delivering applications with a low total cost of ownership and by enhancing performance and availability. The company’s products include application servers, databases, development tools and application management products. “
Option trade to consider: Buy the PRGS OCT 20 2017 40.000 CALL at approximately $0.30.
Thursday, September 28
Accenture Plc (NYSE:ACN) -- The Dublin-based global tech consulting and services company reports fiscal Q4 earnings early Thursday. Analysts expect EPS growth of 11% to $1.46, with revenue rising 6% to $9 billion, and the Earnings Whisper number is $1.48 per share. Investor sentiment going into the company's earnings release has 63% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 11.45% with revenue increasing by 0.16%. The stock has drifted higher by 12.1% from its open following the earnings release to be 12.2% above its 200 day moving average of $122.85. Overall earnings estimates have been revised higher since the company's last earnings release.
In June, management guided Q4 revenue to $8.85 billion-$9.10 billion. Accenture has been pushing into digital, cloud and security services.
Last month, Apple (AAPL) added Accenture to its roster of partners to drive iPhone and iPad usage deeper into large businesses and other enterprises. Accenture will set up iOS studios in select locations around the world with experts from Apple co-located on site. The two companies will develop new tools and services to help Accenture's enterprise clients better engage with their customers using iPhone and iPad.
Option trade to consider: Buy the ACN NOV 17 2017 140.000 CALL at approximately $2.30.
The past week saw the major stock indexes climbing to record highs leading up to and just after the Fed's highly anticipated September meeting. But as expectations for a December rate hike grew the indices cooled; with the Dow Jones Industrial Average (DJIA) up fractionally for the past week to 22,349, but is up more than 4.6 percent for the quarter. The S&P 500 Index (SPX) was flat at 2,502, but is up 3.3 percent for the quarter so far. However, the Nasdaq Composite (COMP) was down about 0.3 percent for the week but up 4.7 percent for the quarter.
Stock markets seemingly continued to shrug off escalating tensions with North Korea; also making poor headlines last week were Apple's new iPhone, the Equifax continuing saga, but healthcare stocks rebounded helping the S&P 500.
Looking ahead, the much-anticipated tax plan proposed by the Trump administration and Republican congressional leadership is expected to be unveiled Wednesday, and that could provide positive momentum for stocks in the final week of the quarter.
Stocks are heading into the final days of the third quarter with solid gains and have avoided the correction expected by many strategists in August and September.
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 markets 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.
But, one positive note comes from the Wharton School's Jeremy Siegel who correctly called the Dow Jones industrial average's surge to 20,000 said he expects stocks to jump even higher in the last 101 days of the year. He believes it'll have a lot to do with President Donald Trump's intention to get business-friendly reforms passed on Capitol Hill -- "I would say corporate tax reform could add another 10 percent to the market even this year," Siegel said.
If Siegel is right this time, too, a 10 percent jump would put the Dow around 24,650 and the S&P 500 at 2,760 based on Wednesday's closes.
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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