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Blue Chip Earnings Preview: Citigroup, Coca-Cola, and Intel

A look at C, KO, and INTC indicators before quarterly earnings

by 10/12/2012 1:03 PM
Stocks quoted in this article:

Earnings season will be in full swing next week, as dozens of high-profile companies take their quarterly turns fessing up. Three large-cap names heading under the earnings spotlight early next week are Citigroup Inc. (NYSE:C - 34.96), The Coca-Cola Company (NYSE:KO - 38.18) , and Intel Corporation (NASDAQ:INTC - 21.56).

C has been climbing higher since late July along the support of its 20-day moving average. The next focal point from a technical perspective is the $38.40 level, site of the stock's annual high pegged in mid-March.

Analysts are expecting C to post per-share results of 96 cents when the banking giant reports ahead of the open on Monday. In three of its last four quarters, the stock has managed to exceed the consensus outlook. The Street is fairly optimistic toward C, as 14 of the 22 firms following the stock name it a "buy" or better, while there are just three "sell" or worse ratings to be found.

At present, the near-the-money (35-strike), front-month straddle is priced at $1.61, representing an expected move of 4.6% in the shares between now and expiration next Friday. Investors who think earnings could spark a rally (or decline) of more than this could also consider long straddle or strangle trades.

Have a KO and a smile -- the stock has been in an orderly uptrend for well over three years, more than doubling in value from its March 2009 nadir. The soft-drink giant has also topped analysts' expectations in each of the last four quarters. Coke will visit the earnings confessional before the open on Tuesday and is expected to disclose profits of 50 cents per share.

Put speculation has been growing on the stock even while its technical picture remains bright. The 50-day put/call volume ratio of buy-to-open activity on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 0.66, while the 10-day volume ratio has ramped up to 1.57. What's more, the shorter-term ratio is higher than 91% of the past year's readings, suggesting bearish speculation is near an annual peak.

The KO 38.50-strike straddle is priced at $0.83, or just 2.2% of the share price. The options market is therefore expecting a very muted reaction in KO shares next Tuesday and throughout all of expiration week.

Lastly, INTC -- which hit another new annual low today -- has dropped below its 40-month moving average. If it remains south of this trendline to close out October, it will be the first such monthly finish since September 2010.

INTC is slated to report earnings after the closing bell on Tuesday. The consensus estimate is for earnings of 50 cents per share, a notable drop from year-ago profits of 65 cents per share. On the plus side, the semiconductor name has managed to issue a positive earnings surprise in all of the last four quarters.

The 21.50-strike straddle can currently be purchased for $0.92, or 4.3% of the share price. Volatilities are running rather high on INTC ahead of this quarterly report; Schaeffer's Volatility Index (SVI) of 34% is higher than nearly three-quarters of the last year's worth of readings.

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