The second-quarter earnings season kicks off this week with key reports from PepsiCo Inc. PEP, Progressive Corp. PGR, and Delta Air Lines Inc. DAL on Thursday, followed by major banks like JPMorgan Chase & Co. JPM, Citigroup Inc. C, and Wells Fargo & Co. WFC on Friday.
Goldman Sachs equity analysts have identified four options trading recommendations for the upcoming earnings season after screening 25 stocks known for frequently preannouncing in July and having a history of early results releases.
Historically, July has accounted for approximately 8% of all preannouncements over the past 13 years, with a significant concentration in the TMT (Technology, Media, Telecom), Healthcare, and Discretionary sectors, which together make up about 50% of July’s preannouncements.
“While preannouncements are not typically planned events, a company is more likely to preannounce if there is a scheduled event that falls into a period after the close of the quarter,” equity analyst John Marshall wrote.
1) Starbucks Call Options
Goldman Sachs Americas Restaurants analyst Christine Cho recommends buying Starbucks SBUX call options, expiring Aug. 9, with a strike price of $77.
Cho is optimistic due to recent frequency data indicating improvements in traffic, app usage, and Net Purchase Intent (NPI). She believes the company’s top-line initiatives could sustain this momentum in the coming quarters.
2) Chipotle (CMG) Straddles
Cho also recommends buying Chipotle CMG straddles ahead of earnings.
A buy option straddle is a trading strategy where an investor purchases both a call option and a put option on the same underlying asset, with the same strike price and expiration date
Read Also: How Does an Options Straddle Work?
While Cho is confident in the company's long-term sales and earnings momentum due to higher throughput and consistent product execution, she anticipates near-term volatility from negative sentiment regarding declining portion sizes.
According to Cho, investors should consider buying the CMG 26-Jul Weekly $62 straddles.
3) Wells Fargo Call Options
Goldman Sachs Banks analyst Richard Ramsden is bullish on Wells Fargo heading into 2Q24 earnings.
Ramsden foresees upside potential in the bank’s 2024 Net Interest Income (NII) guidance and earnings, driven by accelerated loan and deposit growth and the potential lifting of asset cap restrictions.
Moreover, following the 2024 Stress Test results in June, Wells Fargo announced a 14% year-over-year dividend increase, surpassing consensus expectations and ranking among the largest relative to peers.
Ramsden recommends buying the WFC Jul-24 calls, with an exercise price of $61.
4) Cintas Straddles
Goldman Sachs Information & Business Services analyst George K. Tong sees potential for revenue growth deceleration for Cintas Corp. CTAS based on recent survey results.
He anticipates volatility in the upcoming earnings as the company is expected to provide its FY25 guidance.
Despite the short-term growth challenges, Tong believes the company is well-positioned to capitalize on favorable pricing trends, maintain strong customer retention rates, and effectively penetrate the untapped market.
Tong recommends CTAS Jul-24 $700 straddles. Cintas will report its fiscal four-quarter earnings on July 18.
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