Coffee king Starbucks Corporation (SBUX) is slated to hit the earnings drive-thru after the close of trading this Thursday. Wall Street has remained solidly bullish on Starbucks stock, and the shares have held up remarkably well amid the recent bloodbath in the global market.
With solid price action and fundamentals, it’s hard to dismiss the bullish buzz surrounding the stock ahead of earnings.
Diving into the numbers, Wall Street is looking for a fiscal first-quarter profit of 45 cents per share from Starbucks on Thursday, up five cents from year-ago results. Revenue, meanwhile, is seen advancing 12.3% to $5.39 billion year-over-year.
Sentiment is running high on SBUX stock heading into the report. Specifically, EarningsWhisper.com reports a whisper number of 46 cents per share — a penny better than the consensus.
Additionally, Thomson/First Call data reveals that SBUX stock has attracted 23 buys and four holds, with nary a sell rating to be found. The 12-month consensus price target of $68.10 per share, meanwhile, represents a healthy 17.4% premium to SBUX’ close on Friday.
Turning to options activity on SBUX, speculative traders are also jumping on the bullish bandwagon. Currently, the January/February put/call open interest ratio for SBUX stock comes in at 0.78. This ratio drops sharply to 0.65 for the weekly January 22 series – i.e. those options most affected by Starbucks’ quarterly report.
Overall, weekly January 22 series implieds are pricing in a potential post earnings move of about 5.4% for Starbucks stock. This places the upper bound at $61.13, while the lower bound lies at $54.87.
A move to either of these extremes could be significant for Starbucks, as it would place SBUX stock outside of its recent trading range between its 50-day and 200-day moving averages.
Two Trades for SBUX Stock
Call Spread: Traders looking to side with the bulls in the brokerage community want to consider entering a February $60/$62.50 bull call spread. At last check, this spread was offered at 78 cents, or $78 per pair of contracts. Breakeven lies at $60.78, while a maximum profit of $1.72, or $172 per pair of contracts, is possible if SBUX closes at or above $62.50 when February options expire.
Put Sell: Alternately, if the volatility in the broader market has you a bit worried, then a deep out-of-the-money put sell may be more to your risk level. Along those lines, a weekly January 22 $52 put sell might be a way to capitalize on SBUX’s strong technical backdrop.
At last check, the January 22 series $52 put was bid at 32 cents, or $32 per contract. The upside to this put sell strategy is that you keep the premium as long as SBUX stock closes above $52 when January 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.
