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Earnings: Can Ford Rev Up and Pharma Giants Grow Profits?

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July 27, 2016
Ford, Merck, and Bristol-Myers set to announce quarterly market financials.

(NOTE TO READERS: JJ Kinahan is traveling, so the following is a guest column written by Kevin Hincks, Sr. Specialist, Trader Education Host, and Swim Lessons host. Swim Lessons is trader educational programming, which TD Ameritrade clients can access live beginning at 10:30 a.m. CT each trading day from the Support/Chat function within the TD Ameritrade thinkorswim® platform).

Earnings season keeps rolling along this week with automotive giants and a handful of pharmaceutical titans that will offer a distinct and noteworthy take on the economy and consumers.

Ford (F) is reporting earnings Thursday morning, as is pharma behemoth Bristol Meyers (BMY). Ahead of the opening bell Friday, BMY rival Merck (MRK) is set to report.

What’s Driving Sales of Ford SUVs and Trucks?

When F reports Thursday, analysts say they’ll be looking for strong numbers on sales of SUVs and pickup trucks, two big contributors to higher margins.

F already has reported that Q2 U.S. production is ahead 14% over the year-ago results.

But let’s not forget about Brexit, which F has said for some time may present a risk to the business. About 19% of F’s total topline comes from European sales.

Analysts say they also want to finally find out what the new transportation services business will entail. F has said that it includes models not typically part of most automakers, like public transportation buses and passenger rail, as well as cabs, but has revealed precious few details.    

Analysts reporting to Thomson Reuters are forecasting per-share earnings of $0.60, a 28% jump from the year-ago profit of $0.47 per share. Revenues are projected to climb 3.4% to $36.31 billion from last year’s $35.1 billion. 

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 by TD Ameritrade.

In the options market, there’s been active trading for calls at the 14-strike and the 13½- and 14½-strike lines. The implied volatility is at the 45th 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: HOLDING AHEAD OF EARNINGS.

F shares rebounded since hitting a recent low near $12, but haven’t been able to breakout above the $13 to $14 range since the last quarterly earnings report. 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.

BMY Profit Might Grow Double-Digits

One problem many big pharma companies face is losing patents on drugs that have been blockbusters, but soon will have generic competition. BMY has seen their patents expire for Plavix, a successful product for the company, and, more recently, Abilify.

But analysts hope that sales of Opdiva, a cancer drug, will help offset some of the patent expirations. Eliquis, an anti-coagulant drug, also has been successful, as has Orencia, the rheumatoid arthritis medicine, analysts say. Of course analysts will want to know what’s under development and in the pipeline.

Profit growth at BMY has been sluggish in recent years, but that might change this quarter. Analysts reporting to Thomson Reuters are forecasting a per-share profit of $0.66, up 25% from $0.53 a year ago. Total sales are seen rising 12% to $4.7 billion.

Short-term options traders have priced in a potential share-price move of 2% in either direction around the earnings release, according to the Market Maker Move indicator.

Options trading has been thin in BMY. The implied volatility is at the 31st percentile.

FIGURE 2: PULLING BACK FROM A NEW HIGH.

 Since a recent high near $77, BMY shares have pulled back in recent weeks to retest previous resistance at $75. 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.

Can Keytruda Deliver for MRK?

MRK’s got the same patent issue BMY has, and MRK also has a blockbuster cancer drug, Keytruda, to help boost its top and bottom lines. But will it be enough to offset patent expirations? MRK might also see a sales boost from Zepatier, which fights hepatitis C, and Januvia, a Type 2 diabetes medication. What other products does it have in the channel?

Analysts at Thomson Reuters are looking for 6% earnings growth to $0.91 a share from $0.86 a year ago. MRK has beat analysts’ expectations in 14 of the last 15 quarters. Revenue is expected to be flat at $9.8 billion.

Short-term options traders are anticipating a potential 2% share price move in either direction around the earnings release, according to the Market Maker Move.

Options trading in MRK has been light. The implied volatility is at the 35th percentile. 

FIGURE 3: ROLLING OVER AHEAD OF EARNINGS.

MRK shares have pulled back from recent highs near $60. Ahead of earnings, MRK is trading near support at $58. 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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