Bullish Sentiment Swirls Around STZ Stock Before Earnings

Options traders and analysts are upbeat on STZ, while short interest is low

Oct 3, 2018 at 11:10 AM
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Constellation Brands, Inc. (NYSE:STZ) is scheduled to report fiscal second-quarter earnings ahead of the open tomorrow, Oct. 4. This will mark the beer maker's first quarterly report since announcing it signed onto the cannabis craze, and the options market is anticipating a bigger-than-usual next-day reaction for STZ stock.

Currently, Trade-Alert puts the implied daily earnings move for STZ at 6.3% -- higher than the 4.5% one-day move the shares have averaged over the past eight quarters. The majority of these earnings reactions have been positive, though Constellation Brands stock plunged 5.8% in the session following the company's late-June report.

Options traders, it seems, are betting on a move to the upside this time around. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 3.03 ranks in the 85th annual percentile. This means that calls have been bought to open over puts at a quicker-than-usual clip in recent weeks.

This optimism is seen outside of the options pits, too. Although short interest rose 6.4% in the two most recent reporting periods, the 5.14 million STZ shares currently sold short account for a slim 3.2% of the stock's available float. Plus, it would take shorts not even three days to cover these bearish bets, at the equity's average daily pace of trading.

Meanwhile, 11 brokerages covering Constellation Brands maintain a "buy" or better rating, compared to two that say it's a "hold," and two that carry "sell" recommendations on the stock. What's more, the average 12-month price target of $243.73 is a nearly 15% premium to current trading levels.

Looking at the charts, STZ shares are up nearly 7% since their mid-August lows below $200, though the rally recently stalled at the stock's 200-day moving average. This trendline has served as stiff resistance since the security's earnings-induced bear gap in late June. Constellation Brands stock was last seen trading 0.2% lower at $212.23, bringing its year-to-date deficit to 7%.

stz stock daily chart oct 3

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