Yum Brands (YUM) is scheduled to release its second-quarter earnings report after the close of trading on Tuesday, July 14. YUM has attracted considerable attention this week after subsidiary Taco Bell announced that it began delivery services at 200 locations in 90 cities across the U.S. via a partnership with startup DoorDash.
Should any news or expectations for the new service make their way into next week’s earnings conference call, it could have a significant impact on YUM stock.
For the record, Yum Brands earnings are expected to fall 15.9% from year ago levels to 63 cents per share. Revenue is seen off roughly half a percent at $3.19 billion.
Historically, YUM has had issues topping the consensus estimate this year, beating Wall Street’s targets twice, missing once, and matching once. Still, this rocky road hasn’t slowed optimism heading into next week’s report, as EarningsWhisper.com reports that Yum!’s second-quarter whisper number comes in at 66 cents per share.
This earnings optimism stands in stark contrast to the overall mood in the brokerage community.
Data from Thomson/First Call reveals a wealth of skepticism, with 16 of the 26 analysts following YUM stock rating it a “hold” or worse. Meanwhile, the 12-month consensus price target of $92 represents a mere 5.6% premium to Wednesday’s close.
Of course, that means there’s plenty of room for improvement should Yum Brands earnings come in better than expected.
Turning to the options pits, short-term traders are growing more wary toward YUM stock, especially where earnings are concerned. For instance, the July/August put/call open interest ratio comes in at a reading of 0.59, with calls nearly doubling puts among options set to expire within the next two months.
However, zeroing in on just the July options reveals a put/call open interest ratio of 0.7. With this series most impacted by Yum’s earnings report, it stands to reason that options traders are either buying protection for their long positions, or outright betting against YUM stock.
Either way, this is a bearish reading from the short-term speculative options crowd.
Click to Enlarge Overall, July implieds are pricing in a potential post-earnings move of about 6.2% for Yum! stock. This places the upper bound at $94.54, while the lower bound lies at $83.46. Historically, YUM stock has averaged a single-session post-earnings move of about 4%, indicating that July options could be quite pricey at the moment … so, trader beware.
2 Trades for Chipotle Stock
Call Spread: YUM stock has come on strong during the past several months. And despite recent weakness, shares appear to be clinging to short-term support in the $85-$90 region. With expectations set a bit low across the board, traders might want to consider a July $90/$94 bull call spread.
At last check, this spread was offered at $1.53, or $153 per pair of contracts. Breakeven lies at $91.53, while a maximum profit of $2.47, or $247 per pair of contracts, is possible if YUM closes at or above $94 when July options expire.
Put Spread: Alternately, YUM stock is staring up at technical resistance at $90, and making headway here could be difficult. Furthermore, market conditions made it tough on retailers and food service firms in the first quarter, and little has since changed.
As such, those wanting to side with the bearish majority might consider a July $85/$87 bear put spread. At last check, this spread was offered at 83 cents, or $83 per pair of contracts. Breakeven lies at $87.17, while a maximum profit of $2.17, or $217 per pair of contracts, is possible if YUM closes at or below $85 when July options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
