Which Drugs Might Power Sales At Pharma Giant Lilly?

| About: Eli Lilly (LLY)

Summary

Caterpillar, McDonald’s, El Lilly, and Under Armour are on tap to report quarterly earnings ahead of the market open Tuesday.

Analysts at Thomson Reuters are looking for per-share earnings for LLY of $0.85 a share.

Short-term options traders have priced in a potential 1% share price move in either direction around the LLY earnings release.

There are manufacturing, fast-food, pharmaceuticals, and apparel companies in the earnings parade early this week. Caterpillar (NYSE:CAT), McDonald's (NYSE:MCD), El Lilly (NYSE:LLY), and Under Armour (NYSE:UA) are on tap to report quarterly earnings ahead of the market open Tuesday. Can this diverse group of companies shed light on the economy?

Can Cat Roar Again?

What happens at CAT financially can sometimes be telling, considering its status as the largest manufacturer of construction and mining equipment and its global reach. And what have investors seen in recent quarters? Not exactly a lot of good news. In the last quarter, CAT turned in a profit that was 68% below year-ago results.

At Thomson Reuters, analysts are forecasting a per-share profit of $0.69 on revenues of $10.1 billion.

Short-term options traders have priced in a potential 18% share price move in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim®platform by TD Ameritrade.

Ahead of earnings, options trading was active in 74-strike puts and the 81.5-strike calls. The {{implied volatility}} is at the 18th percentile. (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.

Click to enlargeFigure 1: Choppy Trading in Wide Range. CAT shares have seen many ups and downs over the last quarter. 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.

Who Doesn't Love MCD Breakfast?

It took MCD a long time to get around to serving fan-favorite breakfast all day, but the results have underscored the value. So much so that MCD said recently it will expand its breakfast options in September. Has that been enough to stoke topline sales and same-store sales, an important restaurant industry metric that tallies sales at stores open longer than a year?

Some analyst aren't convinced, especially given the slowing of international markets for MCD's sales like Russia and China. Additionally, year-over-year comparisons might be more difficult because of the strong dollar. There's also margin pressure from wage increases worldwide and the high costs of repositioning the brand. Can menu innovation, promotional offering, and the all-day breakfast help keep the brand moving going forward? Analysts say they'll be looking for guidance in the next quarter and beyond for some answers.

Analysts reporting to Thomson Reuters are forecasting a per-share profit of $1.38, up 9.5% from the year-ago period. Total sales are seen slipping 3% to $6.28 billion. Same-store sales are projected to climb 3.3%.

Short-term options traders have priced in a potential share-price move of 6.5% in either direction around the earnings release, according to the Market Maker Move indicator.

Open interest is heaviest at the weekly 128-strike calls. The implied volatility is at the 18th percentile.

Figure 2: Rebound after Brexit. Shares of MCD sold off after the Brexit vote, but have since rebounded going into earnings. 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.

LLY's Medicine Cabinet

Pharmaceutical giant LLY has many irons in the fire, ranging from products like Erbitrux, Cialis, and Jardiance, to patent expirations that could wipe out as much as 22% of total sales. But analysts say they believe LLY's late-stage pipeline, which is particularly strong in diabetes and cancer treatments, might create "numerous opportunities" to support long-term growth.

Analysts at Thomson Reuters are looking for per-share earnings of $0.85 a share. Revenue is expected to come in at $5.14 billion, up from $5.0 billion a year ago. LLY has reported better-than-expected earnings in the three of the last four quarters, but the last quarter wasn't one of them. LLY turned in a profit that missed expectations by 2.35%.

Short-term options traders have priced in a potential 1% share price move in either direction around the earnings release, according to the Market Maker Move indicator.

Ahead of earnings, options trading was active in the monthly Aug 80- and 82.5-strike calls. The implied volatility is at the 1st percentile.

Figure 3: SHARES Trending HIGHER. LLY share have traded in a tight range in recent sessions as its tries to retrace its path to year-ago 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.

Are UA's Shoes Enough?

It's been tough for the likes of UA, which has had to deal with a sluggish retail environment as well as the downfall of a major retailer that stocked its goods: Sports Authority. UA already pruned its full-year guidance because of the liquidation. It also said it will take a $23 million write down tied to the bankruptcy.

Analysts say that UA is gaining market share, but not in all categories. Basketball shoes, for example, at UA did well surfing the Stephan Curry wave but can't hold a candle to Nike's (NYSE:NKE) Air Jordan's. But women's wear is still doing well, according to analysts.

Those analysts reporting to Thomson Reuters are forecasting a 75% drop in earnings to $0.01 a share from $0.04 a share a year ago. Revenues are expected to climb to $1 billion, up 28% from $784 million a year ago.

Short-term options traders have priced in a potential share-price move of 8% in either direction around the earnings release, according to the Market Maker Move indicator.

Options trading has been active at the 38.5-strike puts and the 42.5- and 44-strike calls. The implied volatility is at the 52nd percentile.

Figure 4: Rebound from Support at $36. Shares of UA have been recovering since finding support near the $36 level. 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/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.