With the big boys in the financial banking sector out of the way last week, the regional banks begin to make their appearances on the earnings stage. Bright and early tomorrow morning, Midwestern banking concern Fifth Third Bancorp (NASDAQ:FITB) will step up to release its first-quarter earnings report, and optimism is riding high for the Cincinnati, Ohio-based firm.
For the record, Wall Street is expecting a profit of 27 cents per share from Fifth Third, down a penny per share from year-ago results. Revenue, meanwhile, is seen slipping 1.1% to $1.4 billion year-over-year.
Despite concerns that the Fed will raise interest rates this year, a move that will impact revenue for regional banking firms, some analysts are holding out bigger hopes for Fifth Third. In fact, EarningsWhisper.com reports that Fifth Third’s first-quarter whisper number arrives 2 cents better than the consensus at 39 cents per share.
Bullish sentiment doesn’t end there for the analyst community. Checking in with Thomson/First Call we find that FITB stock has attracted 15 “buy” ratings, compared to 14 “holds,” and just one “sell” rating. Additionally, the 12-month consensus price target rests at $21, a premium of only 11% to Friday’s close at $18.91.
While there is room for improvement in FITB’s sentiment backdrop within the brokerage community, the company might have to provide a solid outlook in order to budge these naysayers.
Speaking of naysayers, options traders aren’t buying into the bullish FITB outlook. In fact, the May put/call open interest ratio for FITB stock currently rests at a one-month high of 1.02, as puts edge out calls among options set to expire within the next month. Peak call open interest currently totals 6,646 contracts at the May $20 strike, while 6,771 put contracts reside at the May $18 strike.
Click to Enlarge Overall, May option implieds are pricing in a potential post-earnings move of about 4.5% for FITB stock. This places the upper bound at $19.86, while the lower bound lies at $18.14. A rally to the upside could leave FITB short of resistance at the round-number $20 level, while a decline could take the stock down for a test of support in the $18 region.
2 Trades for FITB Stock
Call Spread: Wall Street has responded encouragingly to Fifth Third’s bigger brothers in the financial sector, even though many reports have not been blowouts. As such, it would stand to reason that FITB stock should follow suit and head higher if the company matches or beats Wall Street’s targets. Traders looking to bet on this pattern might want to consider a May $19/$20 bull call spread.
At last check, this spread was offered at 31 cents per share, or $31 per pair of contracts. Breakeven lies at $19.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if FITB closes at or above $20 when May options expire.
Put Spread: On the other hand, while Fifth Third has the advantage of being more nimble that is larger brethren, but it is also a bit more vulnerable to shifts in monetary policy by the Fed. Because of this, the company’s guidance may be a concern going forward, potentially negatively impacting the stock. Those looking for a bearish trade might want to consider a May $18/$19 bear put spread.
At last check, this spread was offered at 31 cents per share, or $31 per pair of contracts. Breakeven lies at $18.69, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if FITB closes at or below $18 when May options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
