Next week is huge for earnings. In fact, it’s the biggest week of the season, with well over 100 S&P 500 companies on the list, along with nearly half the Dow Industrial 30. We have lots planned for Winning Edge subscribers this season, including many trades played after reports to take advantage of overreactions to earnings numbers.
But we’re here to hone in on one stock that we’ve pulled from our Winning Edge trade list. It’s Starbucks (SBUX), the bastion of baristas that’s made quite a comeback from the depths of 2008 (the stock has more than quadrupled off that low). SBUX reports after the bell on Wednesday (January 26), with analysts calling for a modest six-cent (18%) increase from a year ago. We say modest because the company has averaged 70% growth during the past four quarters. And the whisper number is three cents below the analyst figure, another sign of lowered expectations.
The stock has performed extremely well after recent earnings reports, gaining ground after six of the past seven releases. In fact, the shares have popped an average of 6.3% in just one day following these reports.
Currently, the stock is in a holding pattern, stuck in a range between 32 and 33 for most of the past six weeks. The 33 level has been a bit sticky, probably because of heavy call open interest at that strike. But another decent earnings report (SBUX hasn’t missed an estimate in seven quarters) could provide the boost the shares need to break into territory last visited in early 2007.
Sentiment is mixed, meaning that we could see some unwinding pessimism that could translate into buying. The put/call ratio is coming off a peak, suggesting that call activity is gaining strength compared to puts. And 10 of 22 analysts rate the stock a “hold,” leaving room for upgrades.
With the stock poised for a breakout, earnings amid lower expectations could be just the spark. Jump on board before SBUX reports next Wednesday.
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