Earnings Preview: Goldman Sachs Group Inc, Johnson & Johnson, and UnitedHealth Group Inc

Goldman Sachs Group Inc (GS), Johnson & Johnson (JNJ), and UnitedHealth Group Inc (UNH) will report earnings bright and early tomorrow

Jul 18, 2016 at 12:25 PM
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Several Dow stocks will report earnings tomorrow. Included in the bunch are Goldman Sachs Group Inc (NYSE:GS), Johnson & Johnson (NYSE:JNJ), and UnitedHealth Group Inc (NYSE:UNH). Below, we'll take a closer look at what the options market is expecting from GS, JNJ, and UNH, with earnings just around the corner.

GS has historically fared poorly in the aftermath of its earnings reports. Over the last eight quarters, the stock has finished the post-earnings session lower five times, with an average loss of 1.3%. This time around, the options market is pricing in a swing of 4.2%, in either direction.

If options traders have their druthers, GS will resolve to the upside after earnings. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open 2.30 calls for every put -- a ratio that ranks near the top quartile of its annual range.

These option bulls should be happy with what they're seeing today. Goldman Sachs Group Inc is up 1.4% at $163.85, amid reports the investment bank is teaming with Bain Capital to acquire a majority stake in cosmetics maker Carver Korea. However, potential technical resistance looms overhead at the descending 200-day moving average.

Meanwhile, expectations are low ahead of JNJ earnings. The stock sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 2.06 -- with long puts doubling calls -- ranking in the bearishly skewed 81st annual percentile. These options traders have reason to be skeptical, too, considering JNJ has finished six of the past eight post-earnings sessions lower.

The pharmaceutical stock has had a rock-solid year, though. So far in 2016, Johnson & Johnson has rallied nearly 20% at $122.83, and last Thursday, the shares hit an all-time high of $123.74.

Finally, UNH is off 0.8% at $140.18, despite receiving a price-target hike to $161 at Jefferies. This analyst optimism is commonplace, with 17 of 19 brokerage firms rating the healthcare stock a "buy" or better. It's also well-deserved, as the shares have advanced over 19% year-to-date, and touched a record peak of $142.96 less than two weeks ago.

In terms of earnings expectations, the options market is pricing in a 4.2% swing tomorrow. By comparison, UnitedHealth Group Inc has averaged a more modest 2.5% move in the immediate aftermath of its past eight earnings reports -- six of which have been to the upside.

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