Online travel firm Priceline Group Inc. (PCLN) joins the corporate earnings parade bright and early on Monday, Nov. 9. Following a 20%-plus rally during October, PCLN stock now is trading in all-time high territory. However, shares are now overbought, leaving Priceline potentially vulnerable to selling pressure in the wake of Monday’s report.
That has created a quandary for PCLN traders.
By the numbers, Wall Street is expecting Priceline earnings to rise 9.3% to $24.23 per share from $22.16 per share a year ago. Revenue is seen up 7.6% year-over-year at $3.05 billion.
Historically, Priceline has blown past Wall Street’s estimates. In fact, the company has topped the consensus in every quarter for the past four years. Despite the strong trackrecord, EarningsWhisper.com’s whisper number for Priceline’s third-quarter whisper number arrives at a relatively conservative $24.62 per share.
That said, overall sentiment within the brokerage community remains largely bullish for PCLN stock. According to data from Thomson/First Call, Priceline has attracted 20 “buy” ratings, seven “holds,” and no “sell” ratings. On the other hand, the consensus 12-month price target of $1,500 represents a premium of only about 2% to PCLN’s current perch, leaving plenty or room for potential target increases.
Turning to the options pits, we find continued bullish sentiment for PCLN stock. Specifically, the November put/call open interest ratio comes in at a reading of 0.85, with calls outnumbering puts among options set to expire within the next month. This ratio dips sharply to 0.69 when we zero in on weekly November 13 series options – i.e. those that are most affected by Priceline earnings.
Click to Enlarge Overall, weekly November 13 series implieds are pricing in a potential post-earnings move of about 6.7% for PCLN stock. As such, the upper bound lies at $1,568.02, while the lower bound lies at $1,371.98. A rally would place PCLN above potential psychological resistance at $1,500, creating the possibility of extended follow-through buying from technical traders. Meanwhile, a selloff would send PCLN back below $1,400, ending the stock’s current rally.
2 Trades for PCLN Stock
Call Spread: For those traders willing to side with the brokerage community, a Nov $1,490/$1,500 bull call spread has a good chance of hitting a maximum return. At last check, this spread was offered at $7.20, or $720 per pair of contracts. Breakeven lies at $1,487.20, while a maximum profit of $12.80, or $1,280 per pair of contracts, is possible if PCLN stock closes at or above $1,490 when November options expire.
Put Sell: On the other hand, if you just aren’t feeling an outright bullish play on PCLN stock, or if the premiums are a bit too steep at the moment, you might consider a deep out-of-the-money weekly Nov 13 series put sell — the 1,300 strike looks promising.
At last check, the Nov $1,300 put was bid at $4.17, or $417 per contract. As with all put sell positions, you keep the initial premium received as long as PCLN stock trades above $1,300 ahead of November option expiration — which occurs next Friday. However, if PCLN trades at or below $1,300 ahead of expiration, you could be assigned 100 shares of PCLN stock at $1,300 each for each put contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
