The earnings parade continues as the Fed wraps up its July meeting. Biotech giant Gilead Sciences (GILD) reports today after market close, and tomorrow morning both Verizon Communications (VZ) and MGM Resorts (MGM) release their second-quarter results.
Gilead Sciences Earnings and Trading Activity
With a market cap of $95 billion, Gilead is one of the big players in the biotech industry. The company’s main products are related to the treatment of HIV, chronic hepatitis B (HBV), and chronic hepatitis C (HCV). In the first quarter this year, the company reported its HIV and HBV sales increased to $3.3 billion, from $2.9 billion in the same period last year, which it attributed to an uptake in its TAF-based products.
While its HIV and HBV sales have increased, the company’s HCV sales have declined and it reported they had dropped to $2.6 billion in the first quarter, compared to $4.3 billion in the year ago period. In the past, management has attributed its drop in HCV sales to a lower number of patient starts, pricing pressures, and an increase in competing drugs.
As is the case for many pharma and biotech stocks, analysts have been focused on the company’s pipeline and which compounds have the potential to deliver future growth. While there is always uncertainty regarding future approvals, the company has several compounds in various phases of clinical trials focused on treating different diseases.
For the second quarter, Gilead is expected to report earnings of $2.18 per share, down from $3.08 in the year-ago period, on revenue of $6.4 billion according to Wall Street consensus analyst estimates. Both earnings and revenues have declined since the fourth quarter in 2015.
After hitting a 52-week low of $63.76 on June 16, Gilead’s stock rallied and is almost back to where it started the year, closing at $73.74 yesterday. Options traders have priced in about a 4% potential share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.
In short-term options trading leading up to the earnings release at the July 28 expiration, calls have been active at the 74 and 75 strike prices while puts have been active at the 72 and 74 strikes. As of this morning, the implied volatility sits at the 57th 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.
Verizon Communications Earnings and Trading Activity
Heading into Q2 earnings, FactSet reported the telecom sector in the S&P 500 (SPX) was the only one out of all 11 sectors projected report a decline in revenues. While the major indexes have increased so far this year, Verizon stock has declined around 19% year-to-date.
In February this year, the company re-introduced unlimited data plans to match offers from competitors, which management had said in the past that the company had no plans to do. Many analysts took that as a sign of increased competitive pressure. At the same time more providers offered unlimited plans, the cost of wireless prices have continued to come down, dropping 7% in March and another 1.7% in April, according to the Wall Street Journal.
As competition increases in the wireless industry, Verizon has taken several steps to diversify its revenue streams. After acquiring Yahoo’s core assets, the company announced it would combine them into its AOL division to form a new media division called Oath. AOL’s CEO Tim Armstrong said the combined brands could reach more than one billion consumers.
For the second quarter, Verizon is expected to report earnings of $0.96 per share, up from $0.94 in Q2 2016, on revenue of $29.9 billion according to Wall Street analyst estimates.
Options traders have priced in about a 2.5% potential share price move in either direction around the earnings release, according to the Market Maker Move. In short-term trading at the July 28 expiration, calls have been active at the 44 and 45 strike prices and puts have been active at the 43 and 43.5 strikes. As of this morning, the implied volatility sits at the 51st percentile.
MGM Earnings and Trading Activity
Las Vegas has traditionally been viewed as the gambling capital of the world, but over the years that title has shifted to Macau, the only part of China where it is legal to gamble. In 2016, government reports stated the Chinese territory generated $28 billion in gaming revenue, compared to $10.76 billion the Nevada Gaming Control Board reported for the entire state.
However, gaming revenues in Macau dropped substantially in 2015, and continued with modest declines in 2016, which was largely attributed to the Chinese government's crackdown on corruption. Based on reports from the Macau Gaming Inspection and Coordination Bureau, gaming revenues have grown so far this year, possibly signaling a turnaround from the multi-year decline.
In the second half of 2017, the company is opening its $3 billion MGM Cotai, which will be its flagship property in Macau. While Macau has been a growing focus for MGM, it still generates a significant portion of its revenues in the United States. In the first quarter, MGM reported $2.1 billion in net revenues at its domestic resorts, compared to $502 million from its China operations. The company’s net revenues have been boosted in recent quarters from its opening of MGM National Harbor as well as its acquisition of the Borgata Hotel and Casino.
For the second quarter, MGM is expected to report earnings of $0.28 per share, up from $0.26 in the year-ago period, on revenue of $2.6 billion, according to Wall Street consensus analyst estimates. Revenues have beat analyst expectations in the past three quarters, while earnings beat in two of them.
The stock is up 15.3% year-to-date, and just hit a new 52-week high of $34.53 in trading yesterday. Options traders have priced in about a 5% potential share price move in either direction around the earnings release, according to the Market Maker Move.
In short-term trading at the July 28 expiration, calls have been active at the 34.5 and 35.5 strike prices and puts have been active across 33.5 and 34 strikes. As of this morning, the implied volatility is at the 64th percentile.
While this is certainly a heavy week for earnings, there are still quite a few big companies left to report. Next week we’ll see results from Apple (AAPL) on Tuesday after market close, and Tesla (TSLA) on Wednesday after market close.