Resiliency And Reinvention? Yahoo, Chipotle And General Motors Earnings On Tap

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Includes: CMG, GM, YHOO
by: JJ Kinahan

Summary

YHOO per-share earnings are estimated to drop 57% from the year-earlier comparable to $0.13, according to a Thomson Reuters survey.

The Thomson Reuters survey also estimates CMG profits to tumble more than 51% from the year-ago comparable to $1.86.

Some 52% of GM’s sales are generated in China, where purchase-tax pullbacks helped boost sales in 2015 but no longer have traction.

High-profile companies covering the far reaches of the economy enter the earnings confessional this week. Here, we'll focus on the reports from three: Yahoo (NASDAQ:YHOO), Chipotle (NYSE:CMG), and General Motors (NYSE:GM) - each saddled with what's been share-moving news beyond your basic earnings results.

YHOO's woes have been widely publicized through each quarter of Chief Executive Marissa Mayer's three-year reign and its stock has been punished (figure 1). Activist shareholders are calling for big changes and some are insisting on a sale of the entire company. Will Mayer deliver the change that her detractors demand?

Identity Crisis?

YHOO boasts more than 1 billion users, but Bloomberg News, quoting EMarketer, notes that the search and content firm's U.S. market share is contracting; it's projected to drop to 3.5% in 2017 from 5.1% in 2014.

In November, Mayer said she was developing a plan to "narrow" the company's focus. We may get a glimpse of that plan when YHOO reports Q4 results after the closing bell today. On Monday, the Wall Street Journal reported that Mayer is expected to unveil a plan aimed at slashing company costs, including the closure of several business units, and a reduction of up to 15% of its workforce.

Per-share earnings are estimated to drop 57% from the year-earlier comparable to $0.13, according to a Thomson Reuters survey. That's on expected flat revenue of $1.2 billion.

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Figure 1: A Newsmaker Itself? Yahoo shares plummeted 34% in 2015. They're down another 6% since the start of the year, but managed to inch up just a bit on a Wall Street Journal report of a pending company announcement. Chart source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

CMG: Is the Worst Over?

CMG has had its share of stock-knocking troubles, too. It was rocked by multiple reports of E. coli outbreaks as well as salmonella and norovirus occurrences that trashed same-store sales-a key restaurant-industry measure.

On Monday, the Centers for Disease Control called an end to its investigations of the E. coli issues, without pinpointing the source. Investors rewarded shares in the short term, but much chart damage had already been done (figure 2).

As for this round of earnings, the Thomson Reuters survey estimate pegs profits to tumble more than 51% from the year-ago comparable to $1.86. Despite the same-store sales drop, total revenues for Q4 are projected to fall 9% from the year-ago period, to $1.1 billion. The report hits after the close today.

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Figure 2: Is the Worst Over? The food-safety crisis decimated Chipotle , knocking shares some 45% off their high of $757 in August to a $404 low hit in mid-January. On Monday, shares rose 4.3% on the end of the E. coli investigation, part of a three-week uptrend that has so far boosted shares some 20%. Chart source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

It's unclear how long it may take CMG to reach its once-lofty stock-price levels, if ever, but until then short-term options traders expect a potential 7.5% move in either direction for this stock around its earnings release, according our indicator. Implied volatility is relatively high at the 82nd percentile.

As for notable options activity, traders are buying the weekly 400 put options, which are pretty far out of the money, while call option buyers are lining up at the 500 and 475 strikes.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

GM's China Sensitivity

When Dow Jones Industrial Average ($DJI) component GM drops its earnings news before the markets open Wednesday, investors will be looking for a potential slowing China impact on the automaker's sales, and, moreover, its future expectations.

Sales were healthy in 2015 for U.S. carmakers and GM was in "prime position" to take advantage, the Wall Street Journal reported. But what's next? Some 52% of GM's sales are generated in China, where purchase-tax pullbacks helped boost sales in 2015 but no longer have traction. Coupled with robust U.S. sales, industry analysts see GM weathering the year well after notable sales declines in Europe and South Africa. Can that happen again in China?

More from the WSJ: "GM executives have acknowledged that 2016 will be volatile in the world's largest auto market, but they still expect modest growth and for Chinese consumers shopping for GM vehicles to move toward pricier luxury cars and SUVs."

Analysts polled by Thomson Reuters expect GM to post per-share profit of $1.20, a penny above the year-ago period. Revenue is estimated to fall to $37.9 billion from $39.6 billion a year ago.

The implied volatility on the stock is sitting in the midrange. Short-term options traders expect a potential 4% move in either direction for this stock around its earnings release, according to our indicator. Call option buyers are dipping into both weekly and monthly 30 strikes, while put option buyers are bunching up at the weekly and monthly 28 strike.

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Figure 3: Spinning its Wheels? Since peaking last March, GM shares are down 23%. Year-to-date losses are 11%. Chart source: TD Ameritrade's thinkorswim platform. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.