Bears Move In On Starbucks Stock Ahead of Earnings

SBUX has moved lower after earnings in three straight quarters

Josh Selway
Nov 1, 2017 at 10:48 AM
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Starbucks Corporation (NASDAQ:SBUX) reports earnings after the close on Thursday, and shareholders may be hiding their eyes ahead of the event. Over the past three quarters, the stock has moved lower in the session after earnings each time, including a 9.2% sell-off in July. SBUX shares have mostly traded sideways since then, last seen trading at $55.27, and sentiment appears bearish across Wall Street ahead of the quarterly event.

First of all, short interest on SBUX has been on the rise for months, increasing by 127% since mid-February. In the last reporting period alone, these bearish bets increased by 9.1%, but short interest still only represents less than 2% of the equity's float, so there's plenty more room on the bearish bandwagon.

One options trader is betting on lackluster price action from Starbucks over the next month, as well. Specifically, it looks like a bearish put spread crossed back on Monday, with a speculator buying to open 5,630 November 52 puts and selling to open an equivalent block of November 49 puts. As such, this bear is hoping to see the stock fall to $49 before the close on Friday, Nov. 17, when the contracts expire.

Analysts, though, remain overwhelmingly bullish. By the numbers, 20 brokerage firms are covering the shares, and 16 of them consider SBUX a "buy" or "strong buy." Moreover, the average 12-month price target of $63.98 represents a nearly 16% premium to current levels. It's hard to imagine another earnings disappointment not drawing some downgrades and/or price-target cuts from this group.

Overall, Starbucks stock has shed almost 15% since its June record high near $65. However, the shares have been consolidating just above their year-over-year breakeven level, as well as the 50-day moving average, hinting at potential technical support going forward.


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