Tim Biggam, TradingBlock (April 13, 2012, 4:00 pm CDT)
|Symbol||Analyst Target Price||Target Date|
|SBUX||57.00||July 20, 2012|
Starbucks Corporation (ticker: SBUX) purchases and roasts whole bean coffees. It operates 6,705 company-operated stores and 4,082 licensed stores in the United States; and 2,326 company-operated stores and 3,890 licensed stores in Canada, the U.K., China, Germany, Thailand, and elsewhere internationally. Further, the company provides various coffee and tea products, and licenses its trademarks through other channels, such as licensed stores, grocery, and national food service accounts.
Starbucks has been on a caffeine high lately, moving up from 46 to nearly 62 this year, a nearly 35% increase. Roughly 7% of this move has come in the past 3 days, with the stock now very overbought at nearly 90 on a 9-day RSI.
SBUX now carries a very hefty P/E of 36, with a forward P/E of nearly 26. Dunkin Donuts, a recent IPO, only carries a forward multiple of 22 for a smaller, faster-growing company.
I feel the exuberance over the single-coffee brewers, as well as China and India growth prospects, is more than reflected in the share prices. With the economy weakening and oil prices still high, SBUX should begin to feel a slowdown, especially given the discretionary nature of their business.
I look for SBUX to move back to the 57 level by July expiration.
Play of the Day
Based on Starbucks' (ticker: SBUX) current market price of $61.67 and using a target price of $57.00, a target date of July 20, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.
Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.
|Strategy (click for details)||% Return at Target||Probability of breaking
even or better
|Sell Jul Iron Condor||+149%||50%|
|Buy Jul Call Butterfly||+51%||52%|
|Sell Jul Iron Butterfly||+46%||53%|
* Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.
DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services. He currently does not hold any positions in SBUX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.