Earnings Preview: Citigroup Inc, BlackRock, Inc., and Wells Fargo & Co

Financial firms Citigroup Inc (NYSE:C), BlackRock, Inc. (NYSE:BLK), and Wells Fargo & Co (NYSE:WFC) will unveil earnings tomorrow morning

Jan 14, 2016 at 11:45 AM
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Earnings season got underway this week when aluminum giant Alcoa Inc (NYSE:AA) took its unfortunate turn on stage. Banking giant JPMorgan Chase & Co. (NYSE:JPM) helped to temper the blow with its results this morning, and tomorrow, fellow financial firms Citigroup Inc (NYSE:C), BlackRock, Inc. (NYSE:BLK), and Wells Fargo & Co (NYSE:WFC) are slated to take their respective turns in the limelight. Below, we'll take the pre-earnings temperature on C, BLK, and WFC.

  • Expectations are high ahead of C's fourth-quarter results, per the equity's 20-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.84. Simply stated, nearly two calls have been bought to open for each put over the past month. Echoing this call-skewed trend is C's Schaeffer's put/call open interest ratio (SOIR) of 0.72 -- in the low 21st percentile of its annual range.

    Looking back over the past eight quarters, shares of Citigroup Inc have moved an average of 3.5% in the session subsequent to reporting -- six of which have resolved to the upside. This time around, the options market is expecting more of the same, based on the equity's near-term at-the-money (ATM) straddle. Technically speaking, it's been a rough road for C, which has shed 26% since hitting a post-recession high of $60.95 last July -- and tagged a two-year low of $44.97 yesterday. Today, however, the shares are flirting with a 0.1% lead to linger near $45.25.

  • Over the last eight quarters, BLK has averaged a post-earnings move of 1.2% -- less than the 3.5% the equity's near-term ATM straddle is projecting for tomorrow's trading. It appears traders at the ISE, CBOE, and PHLX have been bracing for a negative earnings reaction, per the stock's 50-day put/call volume ratio of 4.43 -- in the 98th percentile of its annual range. This accelerated put activity is being echoed in today's trading, too, with puts crossing the tape at three times the average intraday rate, and possible buy-to-open activity occurring at the February 280 strike. If traders are indeed buying to open the puts, they are expecting BlackRock, Inc. to continue its technical rout. Since topping out at an all-time peak of $382.84 last February, the shares have surrendered more than 19%. Thanks to a halo lift from JPM today, though, BLK was last seen up 1.9% at $310.33, after earlier bouncing from the round $300 mark -- and despite receiving price-target cuts at J.P. Morgan Securities (to $371) and Credit Suisse (to $377).

  • While analysts have been waxing optimistic on WFC in the lead-up to tomorrow's fourth-quarter results, option traders have been aligning themselves on the bearish side of the fence. Specifically, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.82 rests higher than 74% of all similar readings taken in the past 52 weeks. In fact, WFC sports a front-month gamma-weighted SOIR of 1.67, meaning near-the-money put open interest nearly doubles call open interest in the soon-to-expire January series.

    Historically, Wells Fargo & Co doesn't tend to make big waves in the session subsequent to reporting -- averaging a slim 1% move over the past eight quarters. Per the stock's near-term ATM straddle, though, the options market is pricing in a loftier 2.6% swing this time around. On the charts, the stock has been falling since notching its most recent high of $56.24 on Dec. 17 -- and was swiftly rejected by its 10-day moving average in yesterday's brutal session -- down 10.3% to trade at $50.46.

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