Oil baron Exxon Mobil Corporation (NYSE:XOM) will report quarterly earnings ahead of the open on Tuesday, and Wall Street bears are already sharpening their claws. XOM stock has been pounded during the past several months as investors flee from plunging crude oil prices.
With per-barrel prices plummeting from $100 to below $45 in the past four months, it’s hard to see a scenario that ends well for XOM stock following next week’s report.
Wall Street’s expectations have been cuts sharply in the past several weeks, with the consensus now forecasting a fourth-quarter profit of $1.33 per share for Exxon — the company’s weakest performance in the past two years. Additionally, revenue is expected to plunge 17% year-over-year to $92.7 billion, though some forecasts place that figure closer to $80 billion.
Checking in with EarningsWhisper.com, we find that forecasts may be even lower that the analyst community is letting on. The current whisper number for Exxon’s fourth-quarter earnings arrives at $1.28 per share — 5 cents worse than the consensus.
Overall, the brokerage community still holds some optimists, with Thomson/First Call reporting that eight of the 24 analysts following XOM stock still rate it a “buy” or better, compared to 14 “holds” and only two “sell” ratings. XOM is also trading within 7% of the average 12-month consensus price target of $94, meaning that lackluster earnings could prompt more analysts to join the “hold” crowd.
While it makes sense for analysts with long-term outlooks to cling to a thread of hope for XOM stock, short-term traders in the options pits have no qualms about betting heavily against the shares. In fact, the February/March put/call open interest ratio of 1.52 reveals a distinct preference for puts over calls in the front two months of options.
The picture becomes even more dramatically bearish when we zero in on the weekly Feb 6 series of options, with the put/call open interest ratio soaring to 3.64 as puts more than triple their call counterparts among options set to expire at the end of next week.
Click to Enlarge Overall, weekly Feb 6 implieds for XOM stock are indicating a potential post-earnings move of about 5.25% for the shares. This places the upper bound at $92.63, leaving XOM languishing below several layers of technical resistance, while the lower bound rests at $83.37, which would mark XOM’s lowest point since mid-2012.
2 Trades for XOM Stock
Put Spread: Those traders looking to jump on the bearish bandwagon might want to consider a Feb $84/$88 bear put spread. At last check, this spread was offered at $2.10, or $210 per pair of contracts. Breakeven lies at $85.90, while a maximum profit of $1.90, or $190 per pair of contracts, is possible if XOM closes at or below $84 when February options expire.
Covered Calls: If betting directly against XOM stock isn’t your style, you might consider entering a Feb $97.50 call sell or covered call position. Such a trade is especially useful if you already own XOM stock, as it allows you to offset some of your portfolio losses in the event of a selloff, but also allows you exposure to any upside up until the stock trades at or above $97.50.
As last check, this option was bid at 13 cents, or $13 per contract. A sold call allows you keep the premium as long as XOM stock closes below $97.50 when February options expire. On the downside, if XOM rallies above $97.50 prior to expiration, you could be forced to provide 100 shares of XOM for each call sold, which could be quite costly if you do not have enough XOM stock on hand to cover the call.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
