Earnings Preview: SONC Gets Focus this Week

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The earnings release schedule remains light this week, as the quarterly reporting season remains a couple weeks away and the holiday week discourages companies from making any notable disclosures.  Still there are a couple of companies to keep an eye on this week

To see all upcoming earnings releases, visit our calendar at marketchameleon.com/Calendar/Earnings/

Sonic Corp (SONC)

January 4 - After the Market Close

Fast-food franchise Sonic (SONC) is among the few companies reporting this week with a recognizable name.  And while the company's release is not likely to be a market-mover in a general sense, the report promises to be relatively interesting, as Sonic looks to avoid another disappointing earnings report when it issues its quarterly results on Wednesday

The chain of drive-in hamburger spots issued weak top-line results last time around, sending its stock tanking to a new low.  This has raised anticipation this time around, with Implied Volatility reaching its highest level in almost a year.

In its last results, issued in October, the company reported a profit that rose to $21.74 million, or $0.45 per share, up from $23.12 million, or $0.43 per share, in the same period last year.  This topped expectations of $0.44 per share.

While the company's profit beat expectations, revenue came up short.  The top line fell to $162.12 million, compared to $175.27 million in the same period last year.  Analysts had expected $167.15 million.

This sparked a sell-off in shares of SONC.  The stock plunged following the report, reaching a 52-week low of $21.12.  SONC quickly began a recovery and advanced over the next several weeks to a level around $28.50, before moderating a bit.  It closed out 2016 at $26.51.

For the most recent quarter, Sonic is expected to earn $0.21 per share, compared to $0.24 per share in the same period last year.  Revenue is expected to fall again, dropping about 10 percent to $130.7 million.

Implied Volatility for SONC has risen sharply since mid-November, climbing to a level of 49.7.  This marks the highest IV level since January 2016.  The ATM Straddle premium for the January 20 expiration is currently at $2.54, or 9.6%.

Over the last four quarters, the absolute average earnings effect for SONC was +/- 9.7%. After the previous release, SONC was down -16.7% versus an expected move of +/- 8.3% (based on the implied straddle).  The stock price has recovered all of those losses since that point, however, and now sits at the same level as it did prior to that release.

Three out of the last four earnings releases resulted in negative moves for the stock, favoring long put positions over long call positions.

Other than the earnings announcement, SONC has another company event scheduled before the 20-Jan-17 expiration. SONC will be presenting at the 19th Annual ICR Conference on January 11, 2017.

Schnitzer Steel (SCHN)

January 5 - Before the Market Open

Schnitzer Steel (SCHN) is a smaller company with a market cap below $1 billion.  It doesn't have enough analyst coverage to give a good estimate of its potential quarterly bottom line (the single analyst with a public estimate is projecting a loss of $0.04 per share compared to a loss of $0.13 per share last year).  Still, in a light week, with only a handful of companies of any note scheduled to release results, SCHN is one of the few with Implied Volatility at unusual levels.

Implied volatility for SCHN has been choppy over the last several months, though it has made steady progress higher since late October.  IV was elevated in May and June of last year, but crashed in late June and early July following the release of the company's quarterly report.  It has generally remained relatively subdued since August, but has ticked up lately to reach 48.1, its highest level since early July.

The ATM Straddle premium for the January 20 expiration is currently at $2.28, or 8.9%.  The absolute average price move for the last four quarterly announcements is +/- 5.35%.  Two of the last four releases have resulted in negative moves in the stock, while the other two have been positive.  During the previous earnings release, SCHN gained +3% against an expected move of +/- 9.5%.

SCHN's earnings report in late June set off a steady climb over the next several months.  The stock rose from a level around $17.60 to a nearly 3-year high of $30.60 in early December.  It has come off that peak in the last several weeks and finished 2016 at $25.70.

For its part, Schnitzer released a forecast in mid-December calling for a loss of $0.05 to $0.08 per share in its upcoming earnings report.  The stock price gained +0.5% on the day following that preliminary estimate.

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