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Earnings: LLY, PFE, XOM and UA Up to the Plate Tuesday A.M.

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January 30, 2017
Earnings reports: Pharmaceutical company, Under Armour.
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Pharmaceutical giants Eli Lilly (LLY) and Pfizer (PFE) are both expected to report results before the markets open on Tuesday. Some analysts say they will be listening for any insight company executives might offer on two key issues that appear to be facing big pharma in coming years—drug pricing and tax policies. 

Also joining the earnings parade early Tuesday morning is oil services leader Exxon Mobil (XOM), which has followed the ups and downs of crude oil prices, but appears to be in the early stages of recovery. Plus, earnings are expected Tuesday for Under Armour (UA), the growing athletic-and-footwear company that has been clocking double-digit revenue gains for 6½ years.

LLY’s New CEO, New Plans

This will be the first quarter that investors will hear from David Ricks, the 20-year LLY veteran who became chief executive Jan. 1, replacing John Lechleiter, who retired at the end of last year.

Earlier this month, Ricks made a series of changes to LLY’s organization and leadership structure to “maximize the potential of our late-stage pipeline and newly launched medicines, while improving productivity,” he said in a press release.

“With new medicines recently launched—and potential new medicines in development for cancer, diabetes, autoimmune diseases, neurodegeneration and pain—Lilly is in the early stages of a new growth period,” he added. Some analysts say they are interested in hearing more about his plans.

Earlier this month, too, LLY announced that it will acquire CoLucid Pharmaceuticals to step up its portfolio in migraine pain management. The deal is expected to close by the end of the first quarter, pending regulatory approval.

In Q3, LLY said that its results, which missed analysts’ expectations, were led by recently approved medicines including Trulicity, Cyramza, Taltz and Jardiance, as well as Erbitux, which partially helped offset lower volumes for, Zyprexa, Cialis and its animal health products division.

The Q4 consensus earnings estimate from third-party Wall Street analysts is $0.99 a share, up from $0.78 per share in the year-ago period, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. Revenue is projected to climb to $5.55 billion from $5.37 billion a year ago.

The options market has priced in an expected share price move of 2.2% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Calls have been heaviest at the monthly 75 strike while puts have seen activity at the weekly 71 and monthly 75 strikes. The implied volatility sits at the 13th 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.

LLY

FIGURE 1: IN RECOVERY MODE.

Shares of LLY fell on Nov. 23 when the company announced that it was pulling the plug on trials for solanezumab, an experimental Alzheimer’s drug. But shares got a bump in mid-December when LLY issued an upbeat outlook for 2017, and have mostly recovered, trading in a tight $2 range most of the month.  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.

PFE’s New Products

Many analysts expect new products like Xalkori, Xeljanz, and Ibrance to help drive the top line for PFE, as are biosimilar products like Inflectra, a version of immunosuppressant Remicade, and older products like Lyrica. Some analysts see Ibrance, for example, to post sales of $2 billion for 2016.

Some analysts say they will be listening for more information on the $14 billion Medivation acquisition PFE completed in September. Others note that the purchase might add sales of prostate cancer drug Xtandi to PFE’s top line, as might PFE’s June 2016 purchase of Anacor Pharmaceuticals. But these might be offset by slowing sales of Lipitor and Pristiq, which are facing generic competition, and Enbrel, which is challenged by biosimilar competition.  

The per-share earnings consensus from third-party Wall Street analysts is $0.50, lower than the $0.53 from the year-ago period, according to the Earnings Analysis tab on the thinkorswim® platform. Revenues are pegged at $13.54 billion. Last year, PFE posted Q4 revenue of $13.60 billion. PFE missed Wall Street’s expectations in the last quarter but before that outpaced expectations in each of the 12 preceding quarters.

The options market has priced in an expected share price move of 2.8% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Both call and put volume has concentrated near the at-the money 31 and 31.5 strikes. The implied volatility sits at the 40th percentile. (Please remember past performance is no guarantee of future results.)

PFE

FIGURE 2: TOUGH TIMES.

PFE shares have had a rough ride in the last year, up 3.7% on a year-over-year basis, as the pharma giant has faced growing competition from generics and biosimilars. But new drugs might help top line sales. 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.

XOM and the Permian Basin

This will be the first quarter that XOM investors will hear from new Chief Executive Darren Woods, who is replacing Rex Tillerson, President Trump’s choice for secretary of state.

That, and a handful of other announcements, made for a busy, eventful month for XOM, according to some analysts. Just days after announcing, along with Hess Corp., that they had discovered a deep oil reservoir in Guyana, XOM doubled its oil and gas reserves in the Permian Basin of New Mexico and Texas. It was a $5.6 billion deal that was billed as the largest oil and gas buy in the U.S. since before the collapse of crude-oil prices. XOM bought an estimated resource of 3.4 billion barrels of oil equivalent in the Delaware basin, what XOM called “a highly prolific, oil-prone section of the Permian Basin.”

“This acquisition strengthens ExxonMobil’s significant presence in the dominant U.S. growth area for onshore oil production,” Woods said in the press release announcing the deal. “We can drill the longest wells in the Permian basin, reducing development costs and increasing reserve capture,” he added.

That subject might be at the top of the agenda for some analysts, who might be looking for more details on XOM’s plans in the red-hot Permian Basin. Also likely on their agenda are questions about XOM’s production goals for 2017.

Like other oil and gas companies, XOM’s earnings and revenue were hit in recent quarters as crude-oil prices spiraled downward from 2014 to early 2016. But this quarter is expected to show the first increase in over a year, and if full-year forecasts pan out, could be the start of an upturn for 2017.

The consensus earnings estimate from third-party Wall Street analysts is $0.72 a share, up from $0.67 a year ago, according to the Earnings Analysis tab on the thinkorswim® platform. Revenue is projected at $63.57 billion, up from $59.80 billion last year.

The options market has priced in an expected share price move of just over 2% 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 85 and 85.5 strikes, while put activity has been focused at the 83.5 strike. The implied volatility is at the 8th percentile. (Please remember past performance is no guarantee of future results.)

XOM

FIGURE 3: SURVIVING OIL SWINGS.

Shares of XOM, like other oil and gas companies, have swung with the highs and the lows of crude-oil prices for the better part of two years. 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.

UA’s Big Bars

The bar appears to have been set pretty high for athletic-wear maker UA by its own doing: It has reported 26 straight quarters of 20%-plus revenue growth. Over the past three years, UA is the only consumer brand to make the top 10 fastest-growing companies in the S&P 500, with total revenue increasing 116% through 2015.

“Our industry’s growth opportunities are global with consumers around the world embracing athletic apparel and footwear at its historic levels,” Chief Executive Kevin Plank said on Q3’s conference call. “It’s not about what people are conveniently referring to as ‘athleisure’ is the simple truth that consumers all over the world are raising expectations about what to expect from their apparel and footwear, and it’s a shift that is not going to be reversed.”

To that end, Plank has been ramping up global sales, which now account for 15% of revenue compared with 10% two years ago. On the call, he said that international sales were more than $700 million in 2016. What’s more, he noted that UA is “making incredible inroads in China” as the government continues to strongly promote sports and fitness.

Some analysts say they are looking to hear more of what the international growth plans include, as well as the company’s forecast for footwear, another key driver of revenue growth. On the Q3 call, Plank said he expected footwear sales to approach $1 billion in 2016.

Third-party Wall Street analysts have forecast a consensus earnings estimate of $0.25 a share, up a penny from the year-ago period, according to the Earnings Analysis tab on the thinkorswim® platform. Revenue is projected at $1.41 billion from $1.17 billion last year.

The options market has priced in an expected share price move of about 7.8% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Although the options trading here is rather light, there has been activity in the monthly options on the call side at the 27.5 strike and on the put side at the 25 strike. (Please remember past performance is no guarantee of future results.)

UA

FIGURE 4: ATHLETIC UNDERPERFORMANCE?

UA shares tended to slump after earnings in 2016 and are down nearly 66% in the last year. The shares are trading near their 50-day moving average. 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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