Facebook Inc (FB) Stock Is Headed to $150 on Earnings

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Facebook stock - Facebook Inc (FB) Stock Is Headed to $150 on Earnings

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We’re in the thick of earnings season, and Wall Street has turned its attention to many of the usual big hitters for guidance. As you have seen from the results, this earnings season has been very hit or miss, especially for “FANG” stocks. In fact, Netflix, Inc.’s (NASDAQ:NFLX) mixed report may have set the tone for the likes of Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB), which will step onto the earnings stage in the first week of May.

Facebook Stock: Facebook Inc (FB) Stock Is Headed to $150 on Earnings

That said, many investors may be underestimating the potential for a Facebook stock rally.

Despite its size and popularity, Facebook may be a sleeper bullish pick this earnings season. The company hasn’t stolen the mass media headlines a la rumors on Apple’s iPhone 8 or Netflix’s trip to the Academy Awards.

In fact, with Snap Inc’s (NYSE:SNAP) IPO, Facebook has faced a round of negativity it hasn’t seen since the early days of Twitter Inc. (NYSE:TWTR) — back when the latter was considered a threat in the social media market.

SNAP and Facebook Stock

In its current form, Snap is hardly the threat many in the financial media are making it out to be, and this could be a boon for Facebook stock and for options traders come May 3, when the company enters the earnings confessional.

By the numbers, Facebook earnings are expected to surge 45.4% to $1.12 per share from 77 cents per share in the same quarter last year. Furthermore, revenue is seen rising 45.2% year-over-year to $7.82 billion. That’s some serious growth for a company that many feel has exhausted its options in the social media market.

What’s more, some on Wall Street have their sights set even higher. According to EarningsWhispers.com, the whisper number for FB’s first-quarter results comes in 9 cents higher at $1.21 per share. Given Facebook’s history of topping the Street’s targets, the company could very well top even this lofty estimate.

That said, the brokerage community has made no secret of its love affair with FB stock. According to Thomson/First Call, 42 of the 46 analysts following Facebook stock rate the shares a “buy” or better. The 12-month consensus price target, meanwhile rests at $160.72 and represents a meager premium of only about 14% to Tuesday’s close.

While upgrades or initiations are unlikely given the ubiquity of coverage on FB stock, price target increases are more than in the realm of possibilities. In fact, Credit Suisse just lifted its target to $175 from $170 on Monday, and Facebook’s quarterly report could spur more brokerages to follow suit.

Not everyone is betting bullish on Facebook stock, however. Short sellers increased their FB positions by 10% to 20.5 million shares as of the most recent reporting period. While the current number of shorted FB shares accounts for less than 1% of Facebook’s total float, the sharp rise indicates growing bearish sentiment ahead of the company’s quarterly report.

Facebook Stock
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Furthermore, options traders are also not as bullish as you would expect with an earnings event on the horizon. Currently, the total May put/call open interest ratio comes in at a 0.78, near a six-month high. For the 5 May series, i.e., those options most affected by Facebook’s quarterly report, this ratio drops sharply to 0.57, which could be a sign that short sellers are hedging their recently opened positions.

Overall, 5 May series implieds are pricing in a potential post-earnings move of about a 5.3% move for Facebook stock. This places the upper bound at about $148.46, while the lower bound lies at $133.54. Technically, the $140 region remains stalwart support for Facebook stock, while additional support lies just below in the $138 region, which is home to FB’s 50-day moving average. Resistance, meanwhile, currently rests at $150.

2 Trades for FB Stock

Call Spread: The nearly two-month-long consolidation period for FB stock has the shares ready to run, if Facebook can pull together a solid quarterly earnings report — and, barring any hidden surprises, the company should be more than fine on that front.

Traders looking to bet on a post-earnings rally for Facebook stock might want to consider a May $145/$150 bull call spread. At last check, this spread was offered at $1.43, or $143 per pair of contracts. Breakeven lies at $146.43, while a maximum profit of $3.57, or $357 per pair of contracts, is possible if FB closes at or above $150 when May options expire.

Put Sell: For those traders concerned about broad-market headwinds, an FB put sell may be just the neutral path you are looking for. At last check, the 5 May $135 put was bid at $1, or $100 per contract. As long as Facebook stock trades above $135 through expiration, traders pursuing this strategy will keep the $100 premium.

However, if FB trades below $135 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $135 per share.

As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/facebook-inc-fb-stock-heading/.

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