The Tale of Big Autos and Big Burritos: GM, CMG Earnings Preview

Auto giant General Motors is scheduled to report earnings Tuesday morning, while Mexican restaurant chain Chipotle is on the docket after the bell.

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https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Start your engines: GM, CMG release earnings Tuesday.
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Earnings keep rolling in off the assembly line. This week starts with results from General Motors (GM) on Tuesday before the market open, while fast-food chain Chipotle Mexican Grill (CMG) will release its results after the bell. 

General Motors Earnings and Options Trading Activity 

Despite the 2017 downtick in industry-wide auto sales—the first since 2009—GM has managed to keep an upbeat tempo on its outlook. At a guidance presentation last month, GM’s Chief Financial Officer Chuck Stevens said he expected the auto giant to deliver, for the year, “record earnings per share at the high end of the $6 to $6.50 range, which is an increase from our prior guidance.”

GM said it ended 2017 “as the automaker with the fastest-growing crossover sales” and strong truck sales in the U.S., which it attributed to demand for Chevrolet crossovers and trucks. Many analysts said they will be looking for 2018 forecasts on the small and mid-sized segments, as well as GM’s luxury brand Cadillac. Also likely to be of interest is how GM has dealt with falling U.S. sedan sales. In October, GM said it was scaling back production at assembly plants in Detroit.

At the same time, some analysts said they want to hear more about GM’s plan to roll out its fully driverless, control-free cars—meaning there are no steering wheels, pedals or other manual controls—as ride-hailing cars by 2019, pending government approval.  

Since bottoming in late May, GM’s stock is up 28%. However, it’s down 12% from its November 52-week high.

The consensus earnings estimate from third-party Wall Street analysts is $1.32 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. A year ago, GM earned $1.28 a share, which was higher than analysts’ expectations of $1.14 per share. Revenue is projected to tumble 24% to $33.26 billion from $43.91 billion a year ago. 

As of 9:30am ET, the options market has priced in an expected share price move of 3.8% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.  

Call activity has been higher at the 42.50-strike while put activity has been concentrated at the 40-strike. The implied volatility sits at the 100th 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.  

GM, 12 month, Feb 2018

FIGURE 1: ROUGH DRIVING.

Shares of GM have traveled a rough road in the last year, bottoming out in late May as the broader markets were solidly advancing. Shares are having a tough time keeping upward momentum since hitting a 52-week high in late October. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Chipotle Earnings and Options Trading Activity 

It appears CMG still has an image problem, according to some analysts. The fast-food chain has yet to fully recover from the issues tied to illness-outbreak reports that first surfaced in 2015, according to UBS analyst Dennis Geiger. Last week, he downgraded the stock, noting that sales drivers don’t seem to be pulling up same-store sales.

“We remain concerned about deteriorating review trends and potential implications for the trajectory of sales,” Geiger wrote in a note. “Heightened competition, a difficult industry environment, and brand perception challenges highlight risks to sales and earnings growth.” He cut the price target to $290 from $345.

Though CMG shares have climbed better than 18% since hitting a 52-week bottom in mid- November, they’re nearly 38% below the 52-week high they reached in May.

In the third quarter, CMG reported earnings of $1.46 a share, which was below Wall Street’s expectations of $1.56 per share. Revenues were $1.128 billion, just short of analysts’ expectations of $1.134 billion.  

Revenue for the fourth-quarter is expected to be roughly flat to the third quarter at $1.122 billion, but about 8% above the year-ago period of $1.037 billion, according to the consensus earnings estimate from third-party Wall Street analysts, as charted on the Earnings Analysis tab on the thinkorswim® platform. Earnings per share are projected to reach $1.33, well above the $0.55 a share CMG reported in the year-ago period, but still below the $2.17 a share from two years ago.  

As of 9:30am ET, the options market has priced in an expected share price move of 6.6% in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.  

Call activity has been higher at the 320 monthly series strike lines while put activity has been concentrated at the 290 strike. The implied volatility sits at the 93rd percentile. (Please remember past performance is no guarantee of future results.) 

CMG, 12 month, Feb 2018

FIGURE 2: THE BIG BURRITO.

CMG shares have taken a deep dive from their 52-week high of $499 and Friday’s downgrade took a little bite out of shares as well. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

 Looking Ahead

Have consumers been going to Disneyland and Disney movies? We’ll find out when Disney (DIS) also reports on Tuesday, after the bell. More auto-related earnings on tap, too, with Tesla (TSLA) coming out Wednesday after the bell. Twitter (TWTR) headlines the Thursday lineup, reporting ahead of the market open and Activision Blizzard (ATVI) after Thursday’s session.

It might be a good idea for investors to be cautious during this period of volatility.

Good Trading,
JJ
@TDAJJKinahan

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