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Earnings: MCD, MSFT, GE and CAT Up Next

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April 21, 2016
mcd msft ge cat earnings reports

What’s really going on in this economy? Investors will get a chance to take the pulse from a few different angles with earnings results coming out Thursday after the market closes and Friday before the bell from McDonald’s (MCD), Microsoft (MSFT), General Electric (GE) and Caterpillar (CAT).

Is MCD’s All-Day Breakfast Still Hot?

MCD knocked it out of the park in the last quarter when customers, who long begged for it, showed they were lovin’ the all-day breakfast. MCD posted its best quarterly sales numbers in four years after extending breakfast. Will that happen again? Or has breakfast for dinner lost its luster? And is the new twist on the value menu working?

At Thomson Reuters, analysts, on average, are looking for the Golden Arches to turn in a 38% jump in profit to $1.16 a share from $0.84 a share in the year-ago period when results are released before the bell Friday. Revenues, however, are expected to fall back to $5.8 billion from $5.96 billion last year.  

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 on the thinkorswim® platform from TD Ameritrade.

Going into earnings, we’re seeing some action at the 132-strike calls and there was activity at the 125-strike puts. The implied volatility is at the 21st 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.

mcd earnings report

FIGURE 1: SHARES ARE LOVIN’ IT.

MCD shares have been trending higher since bottoming in early September. In recent sessions, MCD shares have hit new all-time highs and are up better than 42% since September. 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.

MSFT’s Rough Ride

Microsoft, like other PC-related businesses, is feeling the pinch of the drop-off in PC sales as it transitions from an old-world technology company to the new world, or that biosphere that wants to focus on cloud-computing operations. What MSFT calls its “commercial cloud” was on track late last year to power $9.4 billion in sales for the year, according to analysts. How well are they doing now?

Analysts reporting to Thomson Reuters are looking for a per-share profit of $0.64 compared with $0.61 a year ago. Revenue is expected to edge higher by 1.7% to $22.1 billion. Results will come out ahead of the market open on Thursday.

Short-term options traders have priced in a potential 4% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform from TD Ameritrade.

Going into earnings, options traders are active near the money at the 56-strike puts with a number of buyers coming in at the 60-strike calls. 

msft earnings report

FIGURE 2: MSFT HOLDING IN TIGHT RANGE.

Shares have traded in a tight range between $50 and about $56 since last October. 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.

Is GE Still Restructuring?

It sure seems like the iconic blue-chip industrial has been since announcing that it was stripping itself of its financial arm and slimming down, a move that took years. It’s still a highly diversified and global industrial giant with products and services that include power generation to aircraft engines and medical equipment. It’s now scaling back many of its operations as it works to return capital to shareholders in the form of a $50 billion share buyback.

Analysts reporting to Thomson Reuters are forecasting earnings per share of $0.19, down slightly from last year’s profit of $0.20 per, when results are reported ahead of the market open Friday. Top-line sales are projected to retract to $27.67 billion from $29.36 billion in the year-ago period.

Short-term options traders have priced in a potential 1.5% share price move in either direction around the earnings release, according to the Market Maker Move indicator

Going into earnings, the options activity is primarily at the money at the 31-strike calls and the 31-strike puts. The implied volatility is at the very low 2nd percentile, reflecting what little expectation there is for any surprises. 

ge earnings report

FIGURE 3: GE SHARES MOVING UP

Shares hit an eight-year high in early April at $32.05 and holding in a tight range ahead of 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.

CAT as a Bellwether

CAT is considered a bellwether of the global economy because of its strong manufacturing component and global sales. Some analysts think that CAT is well positioned to beat the Street’s forecasts. Will that happen?

According to some analysts, CAT lowered the Q1 guidance by $0.30 a share earlier this month while keeping its full-year guidance. According to one analyst: “All that happened here was that analysts mistakenly tried to divide up Caterpillar's annual guidance into the four quarters but they got Q1 horribly wrong. The intervention by Caterpillar means that now we have a strong possibility that the company reports a beat on its first-quarter earnings.”

And that could be so even if results drop. Analysts reporting to Thomson Reuters are expecting a per-share profit of $0.69 a share on revenues of $9.4 billion. A year ago, CAT turned in earnings of $1.86 on $12.7 billion.

Short-term options traders have priced in a potential 4% share price move in either direction around the earnings release before the bell Friday, according to the Market Maker Move indicator.

Going into earnings, a lot of options traders are lining up at the 81-strike calls and the 76-strike puts.

cat earnings report

FIGURE 4: CAT SHARES CLAW BACK.

Since bottoming at a 52-wek low in late January at $63.36, CAT shares are climbing higher. 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.

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