Netflix Stock Shows Strength Ahead Of Q1 Results; Intuitive Surgical, Tesla Highlight Earnings Calendar

Netflix (NFLX) and Intuitive Surgical (ISRG) headline a busy week of earnings reports, along with some high-profile financials like Goldman Sachs (GS), Bank of America (BAC) and American Express (AXP). Netflix stock is in a bullish chart setup ahead of earnings, while ISRG stock has been rallying as money flows into health care stocks.

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Results from Intuitive Surgical, best known for its da Vinci robotic surgical system, are due Tuesday after the close. Growth has slowed quite a bit at ISRG but annual earnings estimates look pretty good, with profit expected to rise 15% this year and another 15% in 2024.

Besides the da Vinci system, the company’s Ion endoluminal system is a robotic-assisted system that enables minimally invasive biopsies in the lungs.

When the company reported Q4 results in January, revenue increased 7% to $1.655 billion as ISRG placed 369 new da Vinci systems in hospitals. Worldwide daVinci procedures increased 18% in Q4 despite some softness in China due to a resurgence of Covid-19. Procedure growth is an important metric for ISRG because more procedures means more demand for one-time instruments and accessories. Sales in that area increased 12% to $941 million.

For Q1, the Zacks consensus estimate is for adjusted profit of $1.18 a share, up 4% from the year-ago period. Revenue is expected to rise 6.5% to $1.58 billion.

Netflix Stock Sets Up

Netflix continues to execute well amid cost-cutting initiatives and increasing competition. Similar to ISRG, the company’s growth rate has slowed, but Netflix is expected to boost its bottom line by 19% this year and 25% in 2024.

In February, Netflix cut subscription prices in over three dozen countries. It’s also been cracking down on password sharing, which Netflix has said could be happening with up to 100 million accounts.

Netflix stock gapped up on Jan. 20 after the company said it added 7.66 million new subscribers in Q4. That was well ahead of the 4.57 million consensus. Netflix ended the year with 230.75 million subscribers.

Wall Street looked past a big earnings miss. Revenue increased 2% to $7.85 billion, mostly in line with estimates.

The company reported $1.6 billion in free cash flow in 2022 and expects at least $3 billion in 2023. At the time, BofA Securities analyst Jessica Reif Ehrlich called the cash-flow guidance “superb.”

Q1 profit is seen falling 20% to $2.81 a share, with revenue up 4% to $8.18 billion. Netflix will report results Tuesday after the close.

Chartwise, Netflix is forming a cup-with-handle base with a 349.90 buy point.

3 Chip Stocks Set To Report

In the semiconductor sector, results from chip-equipment firm ASML (ASML) are due Wednesday before the open. ASML stock is also percolating in a cup-with-handle base with a 683.28 entry.

Results from group peer Lam Research (LRCX) are due Wednesday after the close. Taiwan Semiconductor (TSM) reports early Thursday.

Outside of the chip sector, all eyes will be on Tesla (TSLA) when it reports earnings Wednesday after the close. After a strong move off lows, shares ran up close to the 40-week moving average before pulling back.

Freeport-McMoRan (FCX) reports earnings Friday before the open. The copper producer rallied sharply Thursday along with industry group peer Southern Copper (SCCO).

FCX stock is back above its 50-day moving average as it forms a double-bottom base with a 43.98 entry.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for Netflix stock.

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First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week moving averages for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.

Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.

You earn profits when the stock falls below the strike price with a put option.

Check Strike Prices

Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at Cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.

Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.

Netflix Stock Option Trade

Here’s how a recent call option trade looked for Netflix, a liquid name in the options market.

When Netflix stock traded around 345 on Thursday, a slightly in-the-money weekly call option with a 347.50 strike price (April 28 expiration) came with a premium of around $16.40 per contract, or 4.7% of the underlying stock price at the time. That’s a pricey premium, but Netflix does tend to move on earnings.

One contract gave the holder the right to buy 100 shares of Netflix stock at 347.40 per share. The most that could be lost was $1,640 — the amount paid for the 100-share contract.

When taking the premium paid into account, Netflix stock would have to rally past 363.90 for the trade to start making money (347.50 strike price plus $16.40 premium per contract).

Keep in mind that this is not a trade for a small portfolio because buying 100 shares of NFLX at 347.50 would cost $34,750.

A call option for Freeport-McMoRan offered a less pricey trade. When FCX stock traded around 43, a weekly call option with a 44 strike price (April 28 expiration) came with a premium of around $1.45, or 3.4% of the stock price.

Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.

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