Earnings: Can M Compete with Stiff Competition for Consumers?

First quarter earnings season is winding down and the low expectations coming into this reporting period were justified. With 87% of the S&P 500 having reported, it’s looking like earnings for these companies dropped by about 5.5% from last year. This is in line with what some analysts anticipated, according to Thomson Reuters. Is there light at the end of this so-called profit-recession tunnel?

Maybe, says the Thomson Reuters data. “As companies share their expectations for coming months, the proportion of raised forecasts to those that are lowered is the healthiest it has been since 2011,” Reuters reported. We’ll see how that turns out for Walt Disney Company DIS and Macy’s Inc M, which both report Q1 results this week.

Can Box Office Blockbusters Boost DIS?
There’s so much going on at DIS and so little time. The media and entertainment giant is winning fast and hard at the box office like Nyquist did at last weekend’s Kentucky Derby. Think “Star Wars: The Force Awakens” and “Zootopia,” for example. But investors seem to fret about the fate of networks, especially ESPN, which was losing subscribers. Is it still? What about the parks and resorts? And then there’s that succession thing. Many analysts say they’ll jump at the opportunity to ask Chief Executive Robert Iger about the abrupt resignation of what Wall Street believed was his heir apparent, Thomas Skaggs.

They’ll get that chance when DIS reports Q2 results after the bell today. Investors have a lot to listen for but first up will be the financial results. Analysts reporting to Thomson Reuters are projecting, on average, a 6% jump in revenues to $13.2 billion, which they believe will help raise the bottom line by 14% to $1.40 per share.

Short-term option traders have priced in a potential 3% share price move in either direction around the earnings release, according to the Market Make Move indicator on the thinkorswim® platform by TD Ameritrade.

Ahead of earnings many options traders were active in the 103-strike puts and 105-strike calls. The implied volatility is at the 23th 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 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.

Not well, if some analyst expectations prove true. Those reporting to Thomson Reuters are anticipating a 3.2% drop in revenues to $6 billion but a deeper per-share profit decline of 32.1% to $0.38.

Short-term option traders have priced in a potential 6.25% share price move in either direction around the earnings release, according to the Market Maker Move indicator.

Ahead of earnings, many options traders were active at the 35-strike puts and the 40-strike calls. The implied volatility is on the higher end for this quarter at the 41st percentile.