Earnings: Cloud Matters For Microsoft; Is Worst Over For Chevron?

Earnings from two blue-chip stocks in totally different industries could give investors another snapshot of a global economy that’s showing a few cracks. Tech giant Microsoft Corporation MSFT and the oil patch’s Chevron CVX are among the stocks wrapping up a heavy quarterly earnings roundup this week.

Industry analysts talk a lot about the “transition story” of Microsoft away from its roots. Some say that strategic maneuvering into cloud computing has helped Microsoft to counter weakening sales in personal computing—its long-time biggest seller. Global personal computer shipments fell 10.6% year over year in calendar Q4, according to research firm IDC.

But industry analysts are also concerned about the expense of Microsoft’s transition and the impact on profitability.

Head in the Cloud?
It was growth in its cloud-computing platform, coupled with strong Windows 10 adoption, that boosted Microsoft’s better-than-expected results a quarter earlier. That begs the question, can Microsoft muscle out another surprise to the upside when it releases its fiscal Q2 results post-close today? Analysts reporting to Thomson Reuters expect Microsoft earnings to come in dead flat versus the year earlier comparable, at $0.71 a share. Revenue, meanwhile, is projected to decline 4.6%, to $25.27 billion.

The stock is on the defensive heading into earnings (figure 1). And as with other technology stocks during this earnings season, Microsoft implied volatility is on the high side at the 77th percentile. Short-term options traders expect a potential 5.5% move in either direction for this stock around its earnings release, according to the TD Ameritrade thinkorswim® platform’s Market Maker Move indicator. Notable buyer volume has emerged in the weekly 53 and 55 call options; there’s also buying in the January 45 put options.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price and 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.

Can’t Shake Low Oil Prices (Yet)
Chevron’s results, due out ahead of the market’s open Friday, could be another sober reminder of what crashing oil prices are doing to energy giants throughout the world. More important may be who is doing what to survive crude prices at 12-year lows below $30 a barrel.

Chevron already has taken a scalpel to costs, slashing thousands of jobs, and curtailing projects and programs already in the works. Industry analysts on the post-earnings conference call will likely be listening for what measures the company is taking to preserve profits. Chevron has, so far, protected its dividend through this collapse, and investors hope to hear the company will continue to do so.

Analysts reporting to Thomson Reuters have a consensus profit projection at $0.46 on top-line sales of $28.7 billion. That’s a 46% plunge in earnings on a 38% drop in revenue from the same period a year ago.

For investors looking for the slightest bit of good news, Chevron shares have climbed some 19% since bottoming in late August (figure 2). Still, the stock sits at levels last seen in mid-2010.

Short-term options traders expect a potential 2.5% move in either direction for this stock around its earnings release, according to the TD Ameritrade thinkorswim® platform’s Market Maker Move indicator. Implied volatility sits at the 74th percentile. That places notable options trading at predictable points: the Jan 85 call option line and Jan 78 put option line.

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