The bulls are running on Salesforce.com, Inc. (CRM) as the company prepares to step into the earnings limelight after the close of trading tomorrow. Expectations are high, as Wall Street expects earnings to rise 36% to 19 cents per share on a 22.9% jump in revenue to $1.7 billion.
What’s more, this bullish outlook is pervasive throughout Salesforce stock’s sentiment backdrop.
Kicking off with a look at the brokerage community, EarningsWhisper.com reports that Salesforce’s whisper number comes in at 20 cents per share, a penny better than the Street. The company has a strong history of topping Wall Street’s expectations — matching or beating targets in the past 14 quarters — so a penny better than the consensus is certainly not outside of the realm of possibilities.
Taking a closer look, data from Thomson/First Call reveals that analysts have doled out 41 “buy” or better ratings, compared to just two “holds” and three “sell” ratings.
That said, there is some wiggle room for improvement, as CRM stock’s 12-month consensus price target rests at $85, representing a premium of just 11.4% to yesterday’s close.
Turning toward the options pits, CRM options traders are betting big on a continued rally for Salesforce stock. Currently, the November/December put/call open interest ratio for CRM stock comes in at 0.50, with calls doubling puts among near-term options. This ratio rises only slightly to 0.65 for the soon-to-expire November series, hinting at a note of caution that is understandable given current market conditions.
Click to Enlarge Overall, November option implieds are pricing in a potential post-earnings move of about 7.6% for CRM stock. This places the upper bound at $82.34, while the lower bound lies at $70.66. With CRM currently bouncing between support at $75 and resistance near $80, a breakout could result in a move sharper than implieds are pricing in.
2 Trades for CRM Stock
Call Spread: For those traders looking to bet with the bulls heading into Salesforce’s quarterly report, a November $78/$80 bull call spread has plenty of potential for profit. At last check, this spread was offered at 57 cents, or $57 per pair of contracts. Breakeven lies at $78.57, while a maximum profit of $1.43, or $143 per pair of contracts, is possible if Salesforce stock closes at or above $80 when November options expire at the end of the week.
Puts Sell: On the other hand, there are broader global market concerns that could impact CRM stock regardless of the company’s earnings report. Those traders looking for a more conservative play might want to consider a November $65 put sell.
The $65 strike lies well below support at $70, providing a little extra padding from both a time and technical standpoint for options traders. With a November $65 put sell, traders will keep the premium received as long as CRM stock closes above $65 when November options expire at the end of this week.
On the downside, should CRM trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $65 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
