The king of caffeinated morning goodness, Starbucks Corporation (NASDAQ:SBUX), is scheduled to release its fiscal first-quarter earnings report after the close of trading Thursday night.
And judging from the attention the company is garnering, Starbucks stock has the potential to add considerable pep to your portfolio as well.
Expectations are on the rise heading into Starbucks’ quarterly report, with the consensus currently targeting a profit of 80 cents per share on revenue of $4.80 billion. In the same quarter last year, SBUX earned 71 cents per share on sales of $4.24 billion.
Historically, the company has met or bested consensus expectations in every quarter for the past two years. With that in mind, EarningsWhisper.com reports that the whisper number for Starbucks comes in a penny higher than the average at 81 cents per share.
Outside of the numbers, Starbucks stock investors will be paying attention to forecasts for coffee prices, international expansion, and the company’s growing mobile program — which has grown to roughly 6 million weekly transactions, or more than 15% of all U.S. transactions.
Turning to the sentiment front, Wall Street analysts are jazzed about Starbucks stock prospects. According to Thomson/First Call data, the brokerage community has doled out a whopping 22 “buy” ratings, compared to just six “holds” and no “sell” ratings. There is room for improvement on the price-target front, however, as the current 12-month consensus target of $90 represents a meager premium of only about 10% to SBUX’s current perch at $81.22.
Options traders are also extremely bullish on the short-term prospects for Starbucks stock. For instance, the January/February put/call open interest ratio for SBUX arrives at 0.55, with calls nearly doubling puts in the front two months of options. This ratio plunges even further when we look at the weekly Jan. 23 series, arriving at 0.36 as call open interest nearly triples put open interest among options set to expire at the end of this week.
Click to Enlarge Overall, Jan. 23 option implieds are pricing in a potential post-earnings move of about 3.7% for Starbucks stock. This places the upper bound at $83.97, well shy of overhead resistance at the $85 level, while the lower bound lies at $78.03 — below several key short-term moving averages, but above SBUX’s 50-day trendline.
2 Trades for SBUX stock
Call Spread: Traders looking to join the bullish stampede on Starbucks stock ahead of earnings might want to consider entering a Feb $81/$84 bull call spread. At the close of trading last night, this spread was offered at 96 cents, or $96 per pair of contracts. Breakeven lies at $81.96, while a maximum profit of $2.04, or $204 per pair of contracts, is possible if SBUX closes at or above $84 when February options expire.
It also should be noted that it is possible to double your initial investment on this trade (at $82.92) even if SBUX does not close at or above $84, so make sure to have a limit order set to lock in profits.
Put Sell: Alternately, if you’re a bit cautious about the wealth of optimism levied against Starbucks stock, you could look into a bull put sell position. Along those lines, a weekly Jan 23 $78 put sell might be a way to capitalize on SBUX’s strong technical backdrop. After the close last night, the Jan 23 $78 put was bid at 56 cents, or $56 per contract. The upside to this put sell strategy is that you keep the premium as long as Starbucks stock closes above $78 when weekly Jan. 23 options expire at the end of this week.
The downside is that should SBUX trade below $78 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $78 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
