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Earnings Preview: Cars and Oil with F, GM, CVX and XOM

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April 26, 2017
Filling Up Car With Gasoline
iStockphoto.com/bunyarit

Stocks surged in trading yesterday as tax reform details emerged with a press briefing scheduled for today to announce the entire package. On top of that, many  companies continued reporting upbeat earnings with several CEOs expressing optimism for the remainder of 2017. In recent results, AT&T (T)  met earnings expectations, but revenues fell short; and Chipotle (CMG) had a big earnings beat with better-than-expected same store sales growth as well. Next up for Q1, Ford (F), General Motors (GM), Chevron (CVX) and ExxonMobil (XOM) report.

Auto Industry Shakeup

The auto industry was getting a little more press lately due to Tesla (TSLA) surpassing the market cap of both F and GM to become the most valuable automaker in the United States. TSLA’s market cap is currently just under $52 billion, compared to just under $46 billion for F and just over $51 billion for GM. What makes those numbers surprising is the annual sales of these companies. Last year, F sold 6.7 million vehicles and GM sold 10 million whereas TSLA only sold 76,230 vehicles. The three companies are still dwarfed by Toyota’s (TM) roughly $177 billion market cap.

In upcoming auto earnings this week, F reports before open tomorrow and GM reports before open on Friday. F has performed the worst so far in 2017 out of the automakers. Its stock is down almost 9% year-to-date, or YTD, compared to just under a 6% increase in the S&P 500 (SPX). GM is down just over 3% YTD. Many analysts have recently raised concerns that rising car-dealer inventories, particularly for used cars, could pressure the industry in the future. 

F is expected to earn $0.34 per share—half what the company reported in the first quarter last year—on revenue of $34.74 billion, according to consensus third-party analyst estimates. Revenues have topped expectations by $2 billion to $3 billion in the last 5 quarters while earnings have generally been more in-line with analyst estimates.

The options market has priced in just under a 3% potential stock move in either direction around F’s earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading at the April 28 weekly expiration, calls were active at the 11.5 strike price and puts were active at the 10 and 11 strikes. The implied volatility sits at the 39th percentile.

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.

The next automaker reporting this week, GM, is expected to earn $1.45 per share, up $0.19 from Q1 2016, on revenue of $40.25 billion, according to consensus third-party analyst estimates.

The options market has priced in just under a 3% potential stock move in either direction around GM’s earnings release, according to the Market Maker Move indicator. In short-term options trading at the April 28 weekly expiration, calls were active at the 34 and 34.5 strike prices while puts were active at the 33 and 33.5 strikes. The implied volatility sits at the 41st percentile. Since GM doesn’t report until Friday, this information will fluctuate as trading continues today and tomorrow. 

F, TSLA, GM, SPX YTD Stock Performance Chart

FIGURE 1: A CHANGING AUTO INDUSTRY.

The year-to-date performance of F compared to TSLA (red line)  GM (teal line) and the SPX (purple line). YTD performance as a percentage is shown on the right side. 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.

Chevron and ExxonMobil Earnings

Energy companies have been helped by oil prices stabilizing in the $50 range, but prices remain far from highs over the past 10 years. As a result of improving commodity prices, the energy sector in the SPX is expected to report the largest year-over-year increase in earnings, according to FactSet. Despite some turnaround in the sector, there are still several industries in the sector expected to post earnings declines with the largest coming from oil and gas drilling. 

When CVX reports at 11:00AM this Friday, it’s expected to earn $0.86 per share on $32.86 billion in revenue, according to consensus third-party analyst estimates. Earnings are up substantially compared to last year, when the company lost $0.39 per share on revenue of $23.55 billion.

The options market has priced in just under a 1.7% potential stock move in either direction around CVX’s earnings release, according to the Market Maker Move indicator. In short-term options trading at the April 28 weekly expiration, calls were active at the 107, 108 and 110 strike prices while puts were active at the 103 strike. The implied volatility sat at the 39th percentile.

XOM reports before open this Friday with expectations for earnings of $0.85, up from $0.43 in Q1 2016, per share on $64.13 billion, according to consensus third-party analyst estimates.

For XOM, the options market has priced in about a 1.5% potential stock move in either direction around the earnings release, according to the Market Maker Move indicator. In short-term options trading at the April 28 weekly expiration, calls were active at the 82 and 83.5 strike prices while puts were active at the 103 strike. The implied volatility sits at the 41st percentile. Like GM, since CVX and XOM don’t report until Friday, this data will fluctuate until then as trading continues. 

CVX Business Divisions Compared to XOM

FIGURE 2: CVX VERSUS XOM.

Chemicals make up a much larger portion of XOM (right) than CVX (left). TD Ameritrade clients can analyze potential revenue drivers of a stock on the Fundamentals tab on the thinkorswim® platformTrefis information and estimates used in Company Profile are provided by Insight Guru, a separate and unaffiliated firm. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

If you follow the tech sector, tomorrow is a big day in earnings. Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT) and Intel (INTC) all report after market close.

Good Trading,
JJ
@TDAJJKinahan

NC
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