Best Buy Earnings: 2 Bullish Trades for BBY Stock

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Big-box electronics retailer Best Buy Co Inc (NYSE:BBY) will step into the earnings spotlight ahead of the open on Tuesday next week, and expectations are mixed ahead of the event.

Best Buy, BBY, best buy stock, BBY stockFor the record, Wall Street is anticipating a profit of $1.36 cents per share from Best Buy, with upward revisions to this target rolling in over the past several weeks. That said, with the recent bankruptcy of competitor RadioShack Corporation (OTCMKTS:RSHCQ), guidance may be the key for Best Buy investors.

Historically, Best Buy has a habit of topping earnings expectations. In fact, the company has topped Wall Street’s targets in each of the past four reporting periods by an average of 42%. This may explain why the company’s whisper number arrives 9 cents higher than the consensus at $1.45 per share, according to EarningsWhisper.com.

Despite repeatedly beating Wall Street’s targets, BBY stock is still down 2.6% from its last quarterly report. Additionally, the shares have shed roughly 4.6% since the start of the year, but have recovered nicely from a mid-January selloff that saw BBY test support in the $34 region.

Technically speaking, BBY stock has recently pulled back to key support at its 50-day moving average after once again being rejected at overhead resistance in the $40 region. BBY stock has not traded north of $40 since the end of 2013.

Turning to the sentiment outlook, the brokerage community has a rather bullish stance on BBY stock. According to data from Thomson/First Call, 19 of the 28 analysts following BBY stock rate it a “buy” or better. However, the 12-month price target of $42 represents a meager premium of about 12% to Thursday’s close at $37.55.

2-27-2015 BBY
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 Short sellers, on the other hand, have taken out sizeable bets against BBY stock. Currently, some 24.9 million BBY shares are sold short. Representing a respectable 8.2% of the stock’s total float, or shares available for public trading, these short positions could provide fuel for a short squeeze situation should Best Buy benefit from any positive news.

Finally, judging from short-term options activity, these short sellers may be getting a bit nervous. Specifically, BBY’s weekly Mar 6 series put/call open interest ratio rests at 0.53, as calls nearly double puts among options set to expire at the end of next week.

This excitement falls off quite a bit when we pullback to look at the full month of March, where the put/call open interest ratio rises sharply to 1.14.

2 Trades for BBY Stock

Call Spread: Mixed expectations and overhead technical resistance could limit BBY stock’s response to next week’s quarterly report. As such, BBY bulls will want to consider a call spread to maximize their potential returns. Along those lines, a March $37.50/$40 bull call spread has potential.

At last check, this spread was offered at $1.07, or $107 per pair of contracts. Breakeven lies at $38.57, while a maximum profit of $1.43, or $143 per pair of contracts, is possible if BBY stock closes at or above $40 when March options expire.

Put Sell: Alternately, if BBY’s upside potential doesn’t thrill you, then a weekly Mar 6 series $32 put sell might be a viable way capitalizing on technical support. At last check, the weekly Mar $32 put was bid at 11 cents, or $11 per contract.

On the upside, a put sell strategy allows you keep the premium as long as BBY closes above $32 when weekly March options expire at the end of next week. On the downside, if BBY stock trades below $32 ahead of expiration, you could be assigned 100 shares for each put sold at a cost of $32 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/02/best-buy-earnings-2-bullish-trades-for-bby-stock/.

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