Planes and Communications: Boeing and AT&T Quarterly Earnings

Boeing slated to open quarterly books Wednesday before markets open; AT&T scheduled after the close.

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As the earnings parade continues in earnest this week, some Dow Jones Industrials’ components are in line to report. Boeing (BA) is scheduled to step up Wednesday as is AT&T (T). BA, which had a robust 2017 in terms of stock appreciation and has reported record orders, might offer a peek into industrials, while T could represent what communications giants are facing.

Boeing Earnings and Options Trading Activity

BA, the world’s largest aerospace company, is slated to report before the bell Wednesday. In November, BA bumped General Electric (GE) out of the No. 1 spot as the largest industrial manufacturer when its market capitalization rate surged alongside its rising stock price. As of this week, its market cap stood at about $203 billion compared with GE’s roughly $141 billion market cap.

BA stock has dropped 3.5% since hitting an all-time high earlier this month, but BA shares were the Dow Jones Industrials’ biggest advancers in 2017, up better than 105% on a year-over-year basis.

Much of that might have been tied to the inflow of contracts in 2017 from the Pentagon as well as foreign corporations, according to several analysts. Last year was a record year in jet production for BA, according to the company. BA delivered more commercial airplanes than any manufacturer for the sixth consecutive year and set an industry record with 763 deliveries in 2017, driven by high output of the market-leading 737 and 787 jets, the company said in a press release earlier this month. At the same time, BA grew its backlog with 912 net orders, “reflecting healthy demand for its single-aisle and twin-aisle airplanes,” BA said. Commercial airplanes represent nearly 67% of BA’s businesses.

Last week, the U.S. International Trade Commission, an independent body, rejected BA’s claims that it had suffered harm from Canadian-based Bombardier when it won the first U.S. sales of its new line of jets to Delta Airlines. BA claimed that the bid was unfair because it was backed with illegal support from the Canadian government, according to a report in the Wall Street Journal. The U.S. International Trade Commission voted unanimously against that claim.

Investors might also be interested in how BA’s defense, space and security division fared in 2017, as it represents nearly 30% of the company.  

The consensus earnings estimate from third-party Wall St. analysts is $2.91 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. A year ago, BA earned $2.47 a share, which was higher than analysts’ forecasts. Revenue is projected to climb 6.6% to $24.82 billion from $23.28 billion a year ago, which fell short of Wall Street’s expectations.

The options market has priced in an expected share price move of 4.5% 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 350-strike while put activity has been concentrated at the money 340 strike. The implied volatility sits at the 94th percentile, its highest volatility level all year. (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.

BA chart

FIGURE 1: DOW'S BIGGEST ADVANCER

Shares of BA had a setback last week, but BA was the best Dow performer in 2017, rising 105% on a year-over-year basis. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

AT&T Earnings and Options Trading Activity

Earnings for T, which bills itself as the world’s largest communications company by revenues, are scheduled to come out after the markets close Tuesday. Analysts have said they will be interested in hearing what executives have to say about the stalled merger between T and Time Warner, which is being challenged by the U.S. Justice Department on antitrust grounds.

Last week, T called on the Congress to enact a national net neutrality law that would be a permanent solution to disputes about consumer protections. Congress should “end the debate once and for all, by writing new laws that govern the internet and protect consumers,” AT&T Chief Executive Randall Stephenson said in full-page newspaper advertisements published throughout the U.S.

It might also be interesting to hear what T executives have to say about published reports yesterday that the White House is mulling nationalizing 5G wireless networks. The move, according to reports, would be aimed at curtailing Chinese spying on U.S. mobile traffic. A T spokesperson told Investor’s Daily that a launch of 5G service in the U.S. is already well underway. “Industry standards have been set, trials have been underway since 2016, and later this year AT&T is set to be the first to launch mobile 5G service in 12 U.S. locations,” T spokesperson Fletcher Cook said. Government interference could disrupt T’s plans, as well as that of other wireless carriers, according to reports.

In the third quarter, T reported earnings of $0.74 a share, flat to the year-ago period. Revenues fell on a year-over-year basis to $39.66 billion, below Wall Street’s expectations.

Revenue for the fourth-quarter is expected to reach $41.19 billion, lower than last year’s $41.84 billion, according to the consensus earnings estimate from third-party Wall Street analysts, as charted on the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. Earnings per share are projected to reach $0.66, dead even to last year’s profit and a penny below analysts’ forecast.

The options market has priced in an expected share price move of 3.4% 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 38.5 strike while put activity has been concentrated at the 37 level. The implied volatility sits at the 98th percentile. (Please remember past performance is no guarantee of future results.)

AT&T chart

FIGURE 2: MISSING THE BULL RUN.

Looks like shares of T missed the bull market that fueled many other stocks. On a year-over-year basis, T shares are down more than 10%, bottoming in November. Shares took off after bottoming but have struggled much of this year. 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.

Looking Ahead

This is a heavy week of earnings and there are plenty ahead, including Microsoft (MSFT) and Facebook (FB) tomorrow, with Amazon (AMZN), Apple (AAPL) and Alphabet (GOOGL) on Wednesday’s docket. S&P Capital IQ consensus estimates point to an 11% year-over-year earnings-per-share increase, which is higher than the 10.6% advance S&P Capital forecast in late December.

Good Trading,
JJ
@TDAJJKinahan

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Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

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Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.


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