Earnings season is beginning to heat up again, and there are a few notable companies lingering on the list before we hit full stride next week. One such company is restaurateur Yum! Brands, Inc. (YUM), which is responsible for popular fast-food chains like KFC, Pizza Hut and Taco Bell.
YUM stock has rebounded nicely from the post-Brexit selloff, gaining more than 8% and heading for a confrontation with resistance near $86.
Yum Brands has a chance to break out above this technical resistance with this week’s second-quarter earnings report — slated for release after the close this Wednesday.
Currently, Wall Street is expecting Yum Brands earnings to rise 7.24% to 74 per share, with revenue expected to slip 0.7% to $3.08 billion.
Expectations are a touch higher among certain analysts, however. Specifically, EarningsWhisper.com reports that the second-quarter whisper number for Yum Brands earnings comes in at 75 cents per share — a penny better than the consensus.
However, bullish sentiment from the brokerage community ends there for YUM stock. According to data from Thomson/First Call, YUM has attracted just 10 buy ratings, compared to 14 holds and two outright sell ratings.
What’s more, the 12-month consensus price target of $86.95 represents a nearly nonexistent premium of about 1.38%.
Click to Enlarge Options traders, meanwhile, represent a nearly night-and-day contrast with the brokerage community. Specifically, the July/August put/call open interest ratio for YUM stock currently stands at an impressively of 0.30 — with calls more than tripling puts among options set to expire within the next two months.
Overall, July 15 series implieds are pricing in a potential post-earnings move of about 5.7% for YUM stock. This places the upper bound at $90.64, while the lower bound lies at $80.88 from Friday’s close.
2 Trades for YUM Stock
Call Spread: YUM stock has rebounded sharply in the past couple of sessions, with the shares bouncing off support near $80. Strong earnings could provide additional fuel for this rally, proving option bulls correct. Those looking to bet on a breakout for YUM stock might want to consider an August $87.50/$90 bull call spread.
At last check, this spread was offered at 80 cents, or $80 per pair of contracts. Breakeven lies at $88.30, while a maximum profit of $1.70, or $170 per pair of contracts, is possible if YUM closes at or above $90 when August options expire.
Put Spread: Alternately, if you’re not sold on YUM stock’s upside potential, a July 15 series $79 put sell has a high probability of finishing out of the money. At last check, this option was bid at 29 cents, or $29 per contract.
As usual with a put sell, you keep the premium as long as YUM stock closes above $80 when July options expire at the end of this week. On the downside, if YUM trades below $80 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $80 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
