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Beyond PCs and Oil Weakness: MSFT, INTC, CVX Earnings Ahead

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January 26, 2017
Earnings reports: Pharmaceutical company, Under Armour.
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Earnings from three blue-chip stocks covering the technology and oil services sectors may offer another snapshot of a global economy that appears to be mostly in recovery mode. Tech giants Microsoft (MSFT) and Intel (INTC) are scheduled to release their quarterly earnings after the market close Thursday, while the oil patch’s Chevron (CVX) opens the books Friday ahead of the bell.

The common thread among the three is “a look to the future.” INTC and MSFT, which have been a mainstay inside personal computers for decades, now seem to be eyeing life beyond microprocessors, operating systems and software, though these core products still make up a significant portion of the firms’ revenue. CVX, meanwhile, survived last year’s dive in oil prices and, like the rest of the oil sector, picked itself up, brushed itself off, and looked ahead.    

Microsoft, AI and Azure

Widely-held MSFT is slated to report its fiscal year Q2 results after the close Thursday. Its Q1 results blew past Wall Street’s expectations and prompted some analysts to call MSFT the “comeback kid,” as it transitions from a PC software mainstay into a commercial cloud-based services business and further develops its artificial intelligence technology.

“As computing becomes more ubiquitous, converting data into ambient intelligence that can fuel digital transformation is at the very core of our innovation agenda,” Chief Executive Satya Nadella said at the company’s annual meeting in November.

“In fact, AI is already working on your behalf to predict and automate tasks in many of the products you use today,” he added, pointing to handwriting recognition in Windows 10, the Windows Hello facial-recognition feature, voice recognition of Cortana, language translation in Skype, and the input recognition and the Swiftkey keyboard on iOS or Android devices.

Its fastest-growing product is reported to be Azure, what MSFT calls a “growing collection of integrated cloud services—analytics, computing, database, mobile, networking, storage, and web.” Azure revenue has grown in triple digits over the last seven quarters, Nadella said, to help the commercial cloud division’s annualized revenue rate exceed $13 billion. “We remain on track to achieve our goal of $20 billion in fiscal ’18,” he added.

MSFT also completed its purchase of LinkedIn in December and named Kevin Scott to the newly created role of chief technology officer. This expands what his role was at LinkedIn, and it is aimed at driving strategic initiatives across the company.

The Q4 consensus earnings estimate from third-party Wall Street analysts is $0.79 a share, according to the Earnings Analysis tab on the thinkorswim® platform from TD Ameritrade. Revenue is projected to dip slightly to $25.21 billion from $25.69 billion last year.

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.

Calls have been active at the weekly 64 and 65 strikes while puts have seen activity at the 62.5 strike. The implied volatility sits at the 40th 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. 

MSFT

FIGURE 1: MR. SOFTY’S ON THE MOVE.

Since touching a trough of $48.04 in late June, shares of MSFT have been on a slow and steady climb to the upside. Share tapped a 52-week top of $64.10 in late December and have been trading in tight range since. 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.

INTC and the Internet of Things

INTC, the world’s largest maker of computer chips, posted record revenue and strong year-over-year growth in Q3, thanks in part to personal-best revenues out of its data center and Internet of Things (IofT) groups. Might that happen again?

Last quarter’s rise in revenue in the data center group appeared to be helped by stronger numbers in its cloud-computing solutions group, according to INTC, while some analysts noted that the IofT revenue was boosted by sales of embedded video, retail and transportation products. Some analysts expect more of the same in Q4.

Also, INTC announced last summer that it was coming out with a headset called Project Alloy to offer a “merged reality” experience without the fussy cords and hardware. Some analysts admit they don’t know what that term means, and will be looking for more information on it.

Third-party Wall Street analysts have a consensus per-share earnings estimate of $0.76, according to the Earnings Analysis tab on the thinkorswim® platform. Wall Street analysts have revenues pegged at $15.76 billion, on par with what the company forecast during its Q3 release. Last year, INTC posted Q4 revenue of $14.46 billion. INTC has outpaced Wall Street’s expectations in nine of the last 10 quarters.

The options market has priced in an expected share price move of just over 3% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Options trading has been concentrated around its current share price, with call activity at the 38 strike and puts active at the 37 strike. The implied volatility sits at the 29th percentile. (Please remember past performance is no guarantee of future results.)

INTC

FIGURE 2: APPROACHING THE HIGH?

INTC shares hit a 52-week peak in October and are tracking toward that again. In the last year, shares are up more than 26% and have tacked on 9% since the presidential election. 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.

CVX and Wading Through the Oil Patch

It’s been a rough road for oil producers and refineries as they’ve juggled the mostly low crude oil prices amid a global surplus. But the recent pact by the Organization of the Petroleum Exporting Countries (OPEC) and 11 non-OPEC countries, including Russia, which recently agreed to curtail oil production, might have pumped new life into the oil patch worldwide.

CVX solidly outpaced Wall Street’s earnings expectations in Q3 as its domestic and international downstream divisions, coupled with its international upstream unit, helped offset a loss in domestic upstream operations. (Downstream operations are those closest to the end user of crude oil products; upstream operations drill wells and locate raw materials.)

The results also were a welcome relief from the prior two quarters, according to the company. “Third quarter results, though down from a year ago, reflect an improvement from the first two quarters of this year,” Chief Executive John Watson said in the earnings release. “Our operational performance in the third quarter was strong. Our refineries continued to run well.”

Some analysts expect to see more of that, as well as improvement in exploration and production, when results are reported ahead of the bell Friday.

The consensus earnings estimate from third-party Wall Street analysts is $0.63, according to the Earnings Analysis tab on the thinkorswim® platform. Revenue is projected at $32.8 billion, up from $29.25 billion last year.

The options market has priced in an expected share price move of about 1.7% 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 118 strike, while put activity has been focused at the 114 strike. The implied volatility is at the 14th percentile. (Please remember past performance is no guarantee of future results.)

CVX

FIGURE 3: OUTPERFORMER?

Shares of CVX have handily outpaced the gains of the S&P 500 (SPX) in the last year, and shares are just off their 52-week high. Might that level be tested when earnings are released? 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.