S&P 500 constituent Salesforce.com, inc. (CRM) reports earnings Wednesday night. But in front of the release, are there clues as to how CRM stock holders will react?
Let’s take a look at the most recent quarterly announcement from Salesforce, the CRM stock chart and what, if anything, the options market estimates in front of the earnings report.
In front of Wednesday night’s first-quarter earnings release, 48 analysts are forecasting profits of 23 cents per share, with views ranging from an ultra-tight 22 cents to 24 cents.
The current consensus estimate compares to last year’s same quarter result of 16 cents and an increase of 43%. Full-year profit views are for Salesforce to earn $1.01 in 2017 and grow profits by nearly 35% over last year’s earnings of 75 cents.
On the sales side, CRM’s revenues are expected to climb to $1.9 billion versus 2016’s Q1 result of $1.5 billion. Sequentially sales are estimated to grow by 5.5% from Q4’s $1.8 billion.
Full-year sales forecasts are pegged at $8.1 billion, representing an increase of nearly 21% over 2016’s revenues of $6.7 billion. Salesforce is expected to increase sales by an additional 20% in 2018 to $9.7 billion
CRM Stock Short-Term Trading Record
Over the couple years CRM has established a strong pattern of missing Street earnings views 83% of the time, according to estimates by Stocksearning.com, on 10 occasions and beating estimates just once over the last couple years.
Nonetheless, and in the immediate aftermath of reporting, investor reaction in CRM stock has proven to be much more bullish. Working backward, shares of CRM have gained ground by 11.04%, 4.25%, 1.96%, 3.92% and 11.72% and dropped just once by 4.46% in recent quarters.
The price moves in CRM have produced an average increase of 4.74% and standard deviation of 7.30%.
CRM’s seven period stock performance has resulted in shares rising by a slightly lighter 4.24% and sporting a tighter 5% standard deviation over the last six quarterly reports.
CRM Stock Weekly Chart
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Combined with shares of Salesforce now setting up a potential lower high against the 78% retracement level, the noted signs of weakness in CRM stock could manifest into a price reversal as bulls look to exit at opportune levels in front of a longer lasting bearish trend.
CRM Stock Options Pricing & Trader Action
In intraday trade Monday and CRM near $77%, options traders are pricing in a 68% chance shares of Salesforce will remain within a range of $70.50 to $84.50 through Friday.
The math behind the CRM stock range calculation is based on the Weeklys May 20 $77 at-the-money straddle market, which is trading on implied volatility of 94%.
The pricing in the Salesforce straddle is the purest play on the earnings event and tells us what traders collectively expect from CRM stock in the immediate aftermath of its quarterly announcement.
The expected dollar move up or down works out to about 10% by Friday’s close. That’s more than double CRM’s historical average noted earlier. The bid in premiums, though, is still within the range of expected outcomes based on one standard deviation and the normal distribution curve.
Looking slightly deeper at its options activity, front month call trading is swamping all other activity. Concentrated volume of around 18,000 contracts is split between the Weeklys May 20 $75, $77.50, $80 and $85 calls.
A cursory interpretation is that one or more traders may be positioning for a smaller, but bullish move in CRM using the $75/$77.50 bull call spread and financing the purchase with the wider $80/$85 bear call spread for roughly even money or no cost.
Were this the case, the CRM trader would benefit and maximize his or her profit of $2.50 from $77.50 to $80, scratch on the downside, breakeven at $82.50 and lose $2.50 above $85 at expiration.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
