Big-Name Earnings Hit The Tape So What Do The Options Say?

10/24/2022

3 minutes read

2022.10.24 08:21

Major tech/media/telecom firms report Q3 results this week
S&P 500’s earnings growth solid so far, but maybe not so much with a few tweaks
With the VIX near 30, volatility is elevated.

Earnings season is off to a decent start. According to FactSet, the ’s EPS beat rate through last Friday was a solid 72%. Of course, that figure uses per-share profit estimates that have come way down from June 30. At the end of the second quarter, it was forecast that the S&P 500 would feature robust Q3 earnings growth of 9.9%. Fast forward to October, and analysts reduced their outlook so that aggregate EPS would be higher by just 1.5% for the previous quarter, the lowest since Q3 2020, according to John Butters at FactSet.

Back out the sector’s massive 116.4% bottom-line surge, and the year-on-year climb in operating profits is negative at –4.9%. We can play with the math further and find an inflation-adjusted figure which is near –13%. Finally, GAAP earnings are tracking negative by 2.7%, according to Charlie Bilello. So, while there’s a solid headline earnings beat rate, some stats show declines from the same quarter a year ago. Thus, you can make any narrative that pleases you.

Energy Leads Q3 SPX Earnings Growth

S&P 500 Earnings Growth: Q3 2022

But there’s no debate that this week is huge for the corporate world. Much of the S&P 500’s market cap unveils third-quarter earnings over the ensuing days. Microsoft (NASDAQ:), Alphabet (NASDAQ:), Meta Platforms (NASDAQ:), Apple (NASDAQ:), and Amazon (NASDAQ:) issue results on the evenings of Tuesday, Wednesday, and Thursday. Juggernauts from sectors outside of TMT will shed light on other parts of the economy, too.

Massive Earnings Week Ahead

Top Earnings Annoucements

Source: Wall Street Horizon

Wall Street Horizon notes that while Thursday features the highest number of reporters for the week, it’s actually the following two weeks that show the greatest number of earnings releases for companies around the world. Meanwhile, we will get a on Nov. 2 and, of course, the U.S. midterm elections on Nov. 8 with a jobs report in between. Get ready for more .

Traders have not priced in exceedingly high volatility, however. According to Goldman Sachs, implied stock price swings before results cross the wires are somewhat low when you back out broader volatility trends. So, perhaps there’s more bark than bite so far this earnings season. That could all change after this Friday, though.

Much Hoopla, But Implied Stock Price Moves Are Near Average

Implied Move Ahead Of Earnings

Source: Goldman Sachs Investment Research

Let’s dig into the biggest of all the market-moving stocks providing quarterly results this week: Apple. According to data from Option Research & Technology Services (ORATS), traders have priced in a 4.3% earnings-related stock price move following its report Thursday AMC. That is about in-line with previous quarterly releases while the expected $1.26 of EPS would be just a 1.6% earnings growth rate from the same period last year.

There’s a bullish tone in place as, per ORATS, there have been seven analyst upward EPS revisions of the stock and zero downward changes since the July report. I expect the bottom-line figure to top expectations, as has been the historical norm, while the stock could trade lower Friday—AAPL has a weak post-earnings reaction trend.

AAPL: Modest Profit Growth Expected, Strong EPS Beat Rate Trend

Apple Earnings
Source: ORATS

Here are some other key names and their implied moves using straddle pricing: Microsoft 4.4%, Alphabet 5.4%, Amazon 6.3%, Meta 11.1%, ExxonMobil (NYSE:) 3.2%.

The Bottom Line

We are slowly getting more clarity on . At least for the near term. Eyes are gradually focusing on earnings uncertainty for the full year which shows a wide dispersion of estimates, according to Morgan Stanley. Expect to hear about what the future might hold in key guidance this week and through mid-November as this reporting season unfolds.