Facebook Inc (FB) stock has a lot going for it heading into Wednesday’s fiscal fourth-quarter earnings report.
While Facebook itself has solid prospects for 2016 — including the launch of its groundbreaking Oculus Rift VR device — FB stock is rebounding from oversold levels and technical support. And, playing a key supporting role, investor and analyst sentiment is firmly bullish heading into the event.
In short, the prospects for a post-earnings rally for Facebook stock look good.
Taking a closer look at the numbers, Wall Street is expecting 26% year-over-year profit growth to 68 cents per share on revenues seen rising 39.4% to $5.37 billion. Fundamentally, Facebook is emerging from a three-quarter stint where it missed the consensus estimate, finally topping Wall Street’s forecasts in its most recent Q3 report.
Analysts appear to be keying off Facebook’s strong growth, though. According to EarningsWhisper.com, the fourth-quarter whisper number for Facebook stands at 69 cents per share — a penny better than the Street.
The brokerage community is looking pretty bullish, too. According to data from Thomson/First call, FB stock has attracted a whopping 47 buy ratings, compared to three holds and one lonely sell rating. The 12-month consensus price target is also ambitious, arriving at $125 — that’s a nearly 30% premium to Monday’s close.
Checking in with speculative options traders, calls have grown in popularity heading into Facebook’s earnings report. Currently, the January/February put/call open interest ratio comes in at 0.74, with bullishly oriented calls ruling the roost. This ratio rises slightly to 0.77 for the weekly Jan. 29 series, though some caution following one of the worst starts to the year ever is to be expected.
Click to EnlargeOverall, weekly Jan 29 series implieds are pricing in a potential post-earnings move of about a 7% move for FB stock. This places the upper bound at about $105, while the lower bound lies at $91.
Looking at a technical chart, you can see that hitting either limit post earnings would allow FB to breakout of its recent range between its 50- and 200-day moving averages.
In other words, FB stock could be on course to test resistance at $110 … or support at $90 before February option expiration.
2 Ways to Trade Facebook Stock (FB)
Call Spread: While heavy bullish sentiment can be a warning sign for contrarian investors, optimism on an outperforming stock is par for the course. Despite the recent market turmoil, Facebook stock still is in a long-term uptrend, and I would expect tomorrow’s report to reinforce the bullish sentiment underlying the shares.
As such, traders looking to jump on the bullish bandwagon might want to consider a February $100/$105 bull call spread. At last check, this spread was offered at $1.77, or $177 per pair of contracts. Breakeven lies at $101.77, while a maximum profit of $3.23, or $323 per pair of contracts, is possible if FB stock closes at or above $105 when February options expire.
Put Sell: For those traders that are concerned that FB’s upside may be limited due to broader market events, a put sell may be just the neutral path you are looking for. At last check, the weekly January 20 series $85 put was bid at 55 cents, or $55 per pair of contracts.
As long as FB stock trades above $85 through expiration this Friday, traders pursuing this strategy will keep the $55 premium. However, if FB trades below $85 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $85 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
