The earnings lineup for Tuesday morning may give investors an interesting look at what's going on in the economy, from bulldozers and automobiles to T-shirts and basketball shoes. Caterpillar (NYSE:CAT), General Motors (NYSE:GM) and Under Armour (NYSE:UA) all report earnings before the bell Tuesday.
Caterpillar's Sales: Stuck In A Rut Or Out Of The Weeds?
It's been a tough four years for CAT, with sales of its bulldozers, excavators, mining shovels and dump trucks, stuck in a deep rut. Hit by a multiyear string of falling commodity prices, coupled with economic woes that have slowed down building in China and Japan, CAT has endured the longest string of declining sales in its 91-year history.
Many analysts think that it may be ongoing. "Continued weak retail sales could pressure the top-line and drive further inventory reduction into year-end," a Jeffries analyst wrote in a note to clients this week.
That may be part of why Chief Executive Doug Oberhelman said he will step down by the end of the year; Jim Umpleby, a 35-year veteran will take the controls. CAT's stock, which has been among the best Dow Jones Industrials performers this year, gained another 1% when the news was announced last week. Shares had reached a 52-week high of $89.42 earlier this month.
Analysts say they will be listening to CAT's 2017 guidance and insight on what a change in leadership may bring. Those polled by Thomson Reuters are looking for earnings per share of $0.76, a penny ahead of last year's, on revenues of $9.8 billion, well below last year's $11 billion.
Short-term options traders have priced in a potential share price move of 4% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim platform from TD Ameritrade.
CAT is not a big short-term options play overall, but there have been buyers of the 87.5-strike calls. The implied volatility is at the 27th 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.
Figure 1: CHANGING OF THE GUARD. Shares of CAT have been among the Dow's biggest gainers despite sagging sales. Will a management shakeup be the answer? 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 GM's Sales Slowing?
Analysts are expecting GM to turn in lower earnings on slightly higher year-over-year revenues, but that didn't appear to stop some of them from upping their per-share projections in recent weeks, citing stronger than expected production after an IHS Automotive estimate that GM's Q3 output rose 14%.
Noting that it sees "deep value" in GM's stock JPMorgan added $0.05 to its per-share estimate, while Citi raised its forecast by a dime, pointing to its expectation of strong Q3 results.
As a group, analysts reporting to Thomson Reuters are projecting that revenues of $39.3 billion will be slightly higher than last year's $38.8 billion. Some note that 51% of GM's sales come from China, and a stronger dollar may pull the topline down. On the earnings front, analysts anticipate $1.44 a share, $0.06 behind the year-ago results. JPMorgan has a $1.59 per share forecast while Citi's estimate clocks in at $1.49 a share.
Short-term options traders have priced in a potential 3% share price move in either direction around the earnings release, according to the Market Maker Move indicator. They appear to be straddling both sides, with buyers seen at the 32- and 33-strike calls, as well as the 32-strike puts. The implied volatility sits at the 24th percentile.
Figure 2: BUMPY ROAD. After a sizable drop from late 2015 to early 2016, GM shares have chopped around the midpoint in the low $30s. 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.
Under Armour's Track
After the 58% dive in earnings that UA reported in Q2, analysts say they are expecting the sports apparel maker to be back in growth mode again. Sports Authority's bankruptcy last year put a dent into UA's profits, but analysts say they see the impact fading as UA gains a larger presence at Dick's Sporting Goods (NYSE:DKS). Yet competition from Nike (NYSE:NKE) and Adidas (NYSE:ADS) has been heating up too. Did it impact sales in Q3?
Analysts say they are looking at e-commerce and footwear sales, particularly women's, as well as international sales, which surged 73% year-over-year in Q2 in the aftermath of the Rio Olympics. They say they also want updated plans for UA's Connected Fitness hardware line. Additionally, analysts say they want an update on the Oct. 25 launch of the Curry 3, the latest signature shoe designed for Golden State Warriors' point guard Stephen Curry.
Analysts reporting to Thomson Reuters are forecasting a per-share profit of $0.25, up $0.02 from the year-ago period. Topline sales are estimated to jump 25% to $1.5 billion.
Short-term options traders have priced in a potential 6.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator.
There's not been much action of late in short-term options trading, but there were some buyers of the 40-strike calls and the 35-strike puts. The implied volatility sits at a relatively high 45th percentile.
Figure 3: NO SLAM DUNK. Since reaching a 52-week high in early November 2015, shares of UA dove as much as 35% and are still down nearly 25% from the high. 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.