Earnings: Who's Up Next? Yahoo And Intel Today; Morgan Stanley And Halliburton Wednesday

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Includes: BAC, C, HAL, INTC, JPM, MS, VZ, YHOO
by: JJ Kinahan

Summary

Earnings season in full swing with about 20% of the S&P 500 firms reporting quarterly results this week.

Intel, long known for its computing prowess in homes and offices, looks to be setting its sights on the cloud as the market for PC sales shrinks.

Yahoo announced that it was canceling its traditional analyst chat with CEO Marissa Mayer after its Q3 results are announced late Tuesday.

Analysts watching Morgan Stanley analysts are anticipating that both earnings and revenues will rise in Q3 over the same period a year ago.

Haliburton, the world’s No. 2 oilfield-services company, report earnings on Wednesday.

Earnings season is in full swing, with about 20 percent of S&P 500 firms reporting quarterly results this week. As we saw last week, the results from some companies can be disruptive to the markets when earnings surprise or disappoint Wall Street's expectations. Is there more turbulence ahead, given October's reputation for volatility?

Key earnings reports include those from Intel (NASDAQ:INTC) and Yahoo (NASDAQ:YHOO) after the bell Tuesday and those from Morgan Stanley (NYSE:MS) and Halliburton (NYSE:HAL) before the session starts Wednesday.

How Will Intel Survive PC Slowdown?

INTC, long known for its computing prowess in homes and offices, looks to be setting its sights on the cloud as the market for PC sales shrinks. But the PC supply chain may be driving sales and earnings growth in the quarter, according to INTC guidance.

Intel upped its Q3 projections last month, based on better-than-expected PC sales. The supply chain has been quickly refilling depleted inventories in preparation for what's expected to be a robust holiday season, according to the company. Analysts reporting to Thomson Reuters now see a per-share profit of $0.72, up about 13% from the year-ago period, on top-line sales of $15.56 billion, an 8% gain.

INTC still dominates the PC microchip space, and those chip sales contribute to more than half of INTC's revenue, according to analysts. But the global PC business has been on a downward slide for some time, with sales off 3.9% on a year-over-year basis, according to IDC, a market research group. Investors likely are looking for more information on what's happening with INTC's emerging data center group, which some analysts expect to see deliver $4.6 billion in revenue for the quarter, an 11% jump over last year. Can these businesses offset the dropping demand for PCs?

Short-term options traders have priced in a potential 3.2% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform from TD Ameritrade.

Ahead of earnings, buyers of the 37- and 38-strike calls have been active over the last few sessions; buyers and sellers of puts are concentrating on the 35- and 37-strikes. The implied volatility is right in the middle at the 51st 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.

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Figure 1: WHERE'S THE MO? INTC shares have surged well ahead of the markets' gains this year, up nearly 35% since Feb. 11. But shares have been range-bound between $37.00 and $38.00 for most of the past month. 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.

Where's Marissa?

Wall Street was all abuzz when Yahoo announced Friday that it was canceling its traditional analyst chat with CEO Marissa Mayer after its Q3 results are announced late Tuesday. The company cited the $4.83 billion pending sale of its core operations to Verizon (NYSE:VZ), expected to close in early 2017.

But some analysts think there might be more to it, considering the September revelation that 500 million customer accounts were hacked two years ago, coupled with the October acknowledgement from YHOO that it had scanned all customer emails for information tied to a suspected terrorist group.

On top of that, statements from VZ's attorneys last week left the door open to a possible renegotiation of the deal, according to published reports. Apparently, VZ is now concerned that the security breach may represent a material adverse effect on the business. "We have a reasonable basis to believe right now that the impact is material," VZ general counsel Craig Silliman said, according to Dow Jones. Investors and analysts, however, won't be able to ask about it Tuesday, nor, apparently, will they get a preview of what's ahead.

At Thomson Reuters, analysts are forecasting $0.14 a share in profits, a penny below the year-ago results, on revenues that are slightly higher at $1.3 billion, compared with $1.2 billion last year.

Short-term options traders have priced in a potential share price move of 2.5% in either direction around the earnings release, according to the Market Maker Move indicator. They are looking mostly at calls on the 42-strike and puts at the 41.5- and 40-strikes. The implied volatility also looks to be in the middle at the 47th percentile.

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Figure 2: A STOCK RALLY CRY? Since bottoming in February, YHOO shares have advanced as much as 68% to a high reached in early September. Though recently retreating, they are still up some 55% since Feb. 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.

Did Morgan Stanley Benefit from Better Trading?

A bounce in trading revenue reported by other big banks last week appears to have analysts anxious to see if MS-which is more exposed to trading than those that have already reported-also had better performance from trading operations.

But, they note, much of the boost in trading revenues at JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Bank of America (NYSE:BAC) came from fixed-income products while the bulk of MS's trading revenue is typically gleaned from equities. Was there crossover?

Analysts watching MS also look closely at the profitability of its wealth-management franchise, according to the Wall Street Journal." The firm cleared a 22% margin target earlier this year and is under huge pressure to maintain it," WSJ reported.

Thomson Reuters analysts are anticipating that both earnings and revenues will rise in Q3 over the same period a year ago. Profits are pegged at $0.63 a share while top-line sales are projected to climb to $8.17 billion.

Short-term options traders have priced in a potential share price move of 2.5% in either direction around the earnings release, according to the Market Maker Move indicator.

In the options market, buyers of calls at the 33-strike were active, as were those of puts at the 30-strike. The implied volatility is at a relatively low 25th percentile.

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Figure 3: MORE HOVERING AHEAD? On a year-over year basis, MS shares have gained no traction, nor have they in the last month, where they have hovered around $31.00. But since hitting a 52-week low in early February, shares are up over 50%. 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.

Halliburton and the Oil Slump

Is the worst downturn that has ever hit the oil industry finally turning a corner? Some analysts say they hope to hear good news from HAL, the world's No. 2 oilfield-services company, on the conference call after earnings are turned in Wednesday. Even still, analysts say they're not likely to see an improved performance until Q4, and that is assuming crude-oil prices stay above $50 a barrel.

Analysts at Thomson Reuters are expecting a loss of $0.07 a share on revenues of $3.87 billion. If the company reports a net loss, it will be the second straight one after 14 quarters in a row of profits amid the industry slump. A year ago, HAL turned in a profit of $0.31 cents a share on top line sales of $5.58 billion.

Its income and sales have been on a slow and steady decline over the last four years, but analysts see the losses lightening over the next two quarters before finally turning a profit again in Q3 2017, according to Thomson Reuters polls. The conference call may offer more clarity around those projections.

Short-term options traders have priced in a 2.7% potential share price move in either direction around the earnings release, according to the Market Maker Move indicator.

Options trading is tight around recent share prices, with call action at the out-of-the-money 47-strike and puts trading at the 45-strike. The implied volatility sits at the 34th percentile. Please remember that past performance is no guarantee of future results.

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Figure 4: FLYING HIGH. Since February, HAL shares have soared some 68% to a reach a fresh 52-week peak last week and are up nearly 16% in the last two-plus weeks alone. 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.