Adobe Systems Incorporated (ADBE) is slated to slip into the earnings confessional next Tuesday, and, once again, Wall Street is looking for big year-over-year gains.
Similarly, options traders are expecting a considerable move in ADBE stock, with July implieds pricing in a potential post-earnings move of more than 7%. The question is, will ADBE rally or plunge on the news?
Digging into the numbers, Wall Street is forecasting a profit of 68 cents per share from Adobe, marking a 41% jump over the same quarter last year. Additionally, revenue is seen rising 20.8% year-over-year to $1.4 billion.
Expectations may be a bit higher for some in the brokerage community, as EarningsWhisper.com reports a second-quarter whisper number of 70 cents per share for Adobe.
Taking a closer look at analyst expectations, the group is quite bullish on ADBE’s prospects. For instance, Thomson/First Call data indicates that 18 of the 23 analysts following ADBE stock rate the shares a “buy” or better, compared to five holds and no sell ratings. Furthermore, the 12-month price target of $110.38 represents a modest premium of about 13.8% to Tuesday’s close.
Options traders are also leaning bullish on Adobe heading into next week’s earnings report. Currently, the July put/call open interest ratio rests at 0.79, with calls outnumbering puts by a fair margin among options set to expire within the next month.
Click to Enlarge With implieds pricing in a roughly 7% move for ADBE, the upper bound lies near $104.58, while the lower bound rests near $90.52.
Technically speaking, ADBE has pulled back sharply alongside the rest of the market. As a result, Adobe is nearing oversold levels while simultaneously perched on key support near $96, which is home to ADBE’s 50-day moving average.
2 Trades for ADBE Stock
Call Spread: The pullback ahead of earnings should offer up a nice entry point for a long-position on Adobe. Furthermore, returns should be nice, especially if Adobe can hit Wall Street’s targets and not offer any surprises in guidance. Traders looking to join the bullish crowd on ADBE might want to consider a July $100/$105 bull call spread.
At last check, this spread was offered at $1.43, or $143 per pair of contracts. Breakeven rests at $101.43, while a maximum profit of $3.57, or $357 per pair of contracts, is possible if ADBE stock closes at or above $105 when July options expire.
Put Sell: Alternately, if you’re not sold on ADBE stock’s upside potential, a July $85 put sell has a high probability of finishing out of the money. At last check, this option was bid at 65 cents, or $65 per contract. As usual with a put sell, you keep the premium as long as ADBE stock closes above $85 when July options expire at the end of this week. On the downside, if ADBE trades below $85 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $85 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
