Earnings Preview: Caterpillar Inc., Visa Inc, and Alibaba Group Holding Ltd

Caterpillar Inc. (NYSE:CAT), Visa Inc (NYSE:V), and Alibaba Group Holding Ltd (NYSE:BABA) will report earnings tomorrow

Jan 27, 2016 at 2:19 PM
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Earnings season is in full swing, with Wall Street most recently digesting results from Dow components Apple Inc. (NASDAQ:AAPL) and Boeing Co (NYSE:BA). Looking ahead, fellow blue chips Caterpillar Inc. (NYSE:CAT) and Visa Inc (NYSE:V) -- along with Chinese e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA) -- are slated to unveil their results tomorrow morning. Below, we'll take a pre-earnings look at CAT, V, and BABA.

  • It's been a rough ride for CAT, with the shares down 34% from their May 21 annual high of $89.62 to trade at $59.11 -- and fresh off last Wednesday's five-year low of $56.36. This week, the stock has come under attack from a bearish brokerage bunch, including yesterday's price-target cut to $77 from $82 at SocGen. This skepticism is seen in the options pits, as well, where CAT's Schaeffer's put/call open interest ratio (SOIR) of 2.39 sits in the 92nd annual percentile. The options market, meanwhile, is pricing in some pretty lofty volatility expectations ahead of the big announcement. At last check, Caterpillar Inc.'s 30-day at-the-money implied volatility was docked at 37.5% -- above 94% of all comparable readings taken in the past year.

  • Put buyers have been active in V's options pits in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.71 sits in the 76th percentile of its annual range. It's a trend continuing today, with puts crossing at 1.2 times the average intraday rate. Most active is V's weekly 1/29 71.50-strike put, where it appears new positions are being purchased. With V currently docked at $71.85 -- thanks to a solid bounce off this historical moving average -- it would take a drop of more than 0.5% for these puts to move into the money. Looking back over the past eight quarters, meanwhile, Visa Inc has averaged a single-session post-earnings move of 4.1% -- and has been lower five times.

  • BABA has been known to make some volatile moves on the charts in the session subsequent to reporting, averaging a 5.9% swing over the past five quarters. This time around, the options market is pricing in a loftier one-day move of 10%. In the options pits, speculators have been loading up on long calls at an accelerated clip, and those purchasing BABA's near-term contracts have been willing to pay a relatively higher premium. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 51% sits higher than 73% of all comparable readings taken in the past year. On the charts, Alibaba Group Holding Ltd's late-2015 rebound attempt was quickly contained in the $84-$85 region. More recently, the shares were seen lingering near $70.11.
 

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