Tiffany & Co. Earnings Preview: 2 Trades for TIF Stock

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Buying diamonds at Tiffany & Co. (NYSE:TIF) may be quite continental, but profits are an investor’s best friend.

Tiffany & Co. Earnings Preview: 2 Trades for TIF StockSo far this year, profits haven’t been all that chivalrous for Tiffany & Co. stockholders, with TIF stock falling 18% year-to-date. And, despite the company’s first-quarter earnings report slate to hit the Street early next week, the odds of a significant short-term rebound look long indeed.

Diving into the numbers, Wall Street is expecting TIF earnings to plunge 38.6% to 70 cents per share from 97 cents per share in the same quarter last year. Revenue, meanwhile, is seen falling 9.2% year-over-year to $918.7 million.

Historically, Tiffany has hit a few bumps in the road during its past several quarterly earnings reports, missing expectations twice in the past five reporting periods. Still, this hasn’t dissuaded analysts from pushing the stock’s whisper number to 71 cents per share in anticipation of better-than-expected results.

On the sentiment front, TIF stock is awash in bullish opinions. According to data from Thomson/First Call, 15 of the 27 analysts following the shares rate them a “buy” or better. Meanwhile, the 12-month price target of $98 represents a premium of about 13% to yesterday’s close.

Options traders, meanwhile, have grown call-heavy on TIF. The stock’s June put/call open interest ratio has fallen to a perch of 0.57, with calls nearly doubling puts among options set to expire within the next month. Peak June call open interest of 3,097 contracts rests at the out-of-the-money $92.50 strike, while another 2,896 contracts are open at the deep-out-of-the-money $100 strike — hinting at elevated expectations among short-term traders.

05-22-2015 TIF
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 Overall, June option implieds are pricing in a post-earnings move of about 7.9% for TIF stock. As a result, the upper bound for such a move rests at $93.06, while the lower bound lies at $79.44. Technically, TIF stock has been locked in a trading range just between $80 and $90 for the better part of 2015, with $90 providing a rather firm ceiling for the shares.

2 Trades for TIF Stock

Put Spread: Optimism levied against an underperforming stock is often a bearish indicator for contrarian traders, as it leaves the door open for disappointment and an unwinding of held positions. With TIF’s poor price action, and little in the way of changes in the company’s market place expected over the short-term, I’m leaning toward a bear put spread ahead of Tiffany’s quarterly report.

At last check, the Jun $82.50/$85 bear put spread was offered at 62 cents, or $62 per pair of contracts. Breakeven lies at $84.38, while a maximum profit of $1.88, or $188 per pair of contracts, is possible if TIF closes at or below $82.50 when June options expire.

Call Sell: If betting directly against TIF stock poses a problem, or if you currently own TIF stock, you might consider entering a Jun $100 strike call sell position. If you own TIF in your portfolio, then this option trade will allow you to offset some of your portfolio losses in the event of a selloff, while providing exposure to any upside up until the stock trades at or above $100.

At last check, this option was bid at 14 cents, or $14 per contract. A sold call allows you keep the premium as long as TIF stock closes below $100 at expiration. On the downside, if TIF rallies above $100 prior to expiration, you could be forced to provide 100 shares at TIF’s current market value for each call sold, which could be quite costly if you do not have enough TIF stock on hand to cover the call.

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/2015/05/tiffany-co-earnings-preview-2-trades-for-tif-stock/.

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