Under Armour And General Motors Get On The Earnings Court

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Includes: GM, UA
by: JJ Kinahan

Summary

UA has a considerably long track record of beating Wall Street’s expectations for per-share profit.

Short-term options traders have priced in a potential 7.5% share price move in either direction around the UA earnings release.

Analysts polled by Thomson Reuters are looking for $1.01 per share on GM's bottom line, driven by top-line sales of $35.75 billion.

Under Armour (NYSE:UA) and General Motors (NYSE:GM) are scheduled to report Thursday morning before the bell. What insights into consumer spending and the overall economy can they offer?

What's UA's Game?

UA earnings should sport little surprise, considering the athletic apparel and footwear maker reiterated its full-year forecast earlier this month and some analysts call Q1 the most insignificant of quarters for the company. But not all analysts are falling in line on the projections.

The average expectations of analysts reporting to Thomson Reuters is $0.03 a share on revenues of $1.03 billion. If those numbers materialize, that would mark the third straight quarter that UA has passed the billion-dollar sales mark. As for the per-share profit, UA has a considerably long track record of beating Wall Street's expectations. Can it do it again?

Some analysts are focusing on women's segment of the company. That's become a crowded category with a growing lineup of smaller companies, celebrity-driven brands and fledgling boutiques getting into the game. UA, which has only recently ramped up women's apparel, has said it expects the category to speed well past menswear sales. How quickly might that happen?

Footwear, a big athletic-endorsement arena for UA and most of its top competitors, is another point of interest, analysts say. Jordan Spieth and Stephen Curry, two top athletes with vastly different championship experiences earlier this month, are among UA's most notable spokesmen. Does the agony of defeat sell shoes as well as the thrill of the win?

Short-term options traders have priced in a potential 7.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim®platform from TD Ameritrade.

Going into earnings, options trading is a little lackluster with the largest open interest at the 39-strike puts and some action at the 45- strike calls. The implied volatility is at the 60th percentile, which may be because of the stock split the company took earlier this month. UA gave investors one share of a new Class C stock for every share of Class A and Class B stock they owned. That may have been confusing to traders and potentially may be what's at the heart of the low-volume activity. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price 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.

Figure 1: Getting Game. UA is nearly unchanged on a year-over-year basis. Since bottoming earlier this year, UA is up some 35%. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

GM's Rough Ride

Carmakers have had a tough time of it in the stock market amid concerns that the record sales results of 2015 are not sustainable for 2016. Has the demand for new U.S. vehicles peaked?

If Q1 for GM is any indicator, the answer would have to be no. But one carmaker does not make an industry nor does one quarter. GM, like some of its competitors, has cut back on U.S. daily rental fleet sales, the lower-priced cars sold to the likes of Avis, Hertz and Enterprise. Those tend to be low-margin sales and can pull down resale prices on the used-car market.

Moreover, what is GM expecting as it slams the pedal to the metal on those sales this year? That's what analysts will likely be listening for on the conference call after the earnings are announced. As well, they say, they want to know what GM's plans are to rev up sales. Until then, analysts polled by Thomson Reuters are looking for $1.01 per share on the bottom line, driven by top-line sales of $35.75 billion. Sales are about flat to the year-ago period, while earnings are more than 17% higher than last year's.

Short-term options traders have priced in a potential 3.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator.

Going into earnings, the options trading volume is right at the money at the 32-strike calls and 31-strike puts. The implied volatility is at the lower end, hanging at the 28th percentile.

Figure 1: Rocky Ride for GM. Shares have seen some wild swings in the last year. Since skidding at the beginning of the year, GM shares rallied nearly 20% but are still below recent highs. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Disclosure: I am/we are long UA.

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.