While technology is in turmoil today, coffee remains calm. With Starbucks’ (SBUX) third-quarter earnings report slated to hit Wall Street after the close tomorrow, the SBUX stock price is holding firm just shy of all-time highs.
Given Starbucks’s solid earnings history, matching or beating the consensus estimate in the past eight quarters, SBUX investors should have little to fear.
Diving into the numbers, Wall Street is expecting Starbucks earnings to rise 20.6% to 41 cents per share in the company’s fiscal third quarter. Revenue is seen advancing 17% year-over-year to $4.86 billion. Analyst expectations, however, may be set just a tad higher, with EarningsWhisper.com reporting a whisper number of 42 cents per share.
Optimism is a common theme for Starbuck’s sentiment backdrop. According to Thomson/First Call data, the brokerage community has issued 24 “buy” ratings on SBUX stock, compared to just four “holds” and one “sell” rating. That said, there is definitely room for improvement on the price-target front, as the current 12-month consensus target of $57.50 represents a meager premium to SBUX’s current perch at $56.40.
Options traders are also quite bullish on SBUX stock’s short-term prospects. For instance, the July/August put/call open interest ratio for SBUX arrives at 0.72. This ratio plunges even further when we look at the weekly July 24 series, arriving at 0.54 as call open interest nearly doubles put open interest among options set to expire at the end of this week.
Click to Enlarge Overall, weekly July 24 series option implieds are pricing in a potential post-earnings move of about 4.5% for SBUX stock. This places the upper bound at $58.50, while the lower bound lies at $53.50.
2 Trades for SBUX stock
Call Spread: Traders looking to join the bullish bandwagon on SBUX might want to consider entering an Aug $57/$58 bull call spread. At last check, this spread was offered at 33 cents, or $33 per pair of contracts. Breakeven lies at $57.33, while a maximum profit of 67 cents, or $67 per pair of contracts, is possible if SBUX closes at or above $58 when August options expire.
Put Sell: Alternately, if you’re a bit cautious given recent events on Wall Street, then you might want to look into a bull put sell position. Along those lines, a weekly July 24 series $52 put sell might be a way to capitalize on SBUX’s strong technical backdrop.
After the close last night, the July $52 put was bid at 17 cents, or $17 per contract. The upside to this put sell strategy is that you keep the premium as long as SBUX stock closes above $52 when July options expire at the end of this week. The downside is that should SBUX trade below $52 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $52 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
