Earnings Preview: Shake Shack Inc., Krispy Kreme Doughnuts, Inc., and Dollar General Corporation

Analyzing recent option activity on Shake Shack Inc (SHAK), Krispy Kreme Doughnuts (KKD), and Dollar General Corp. (DG)

by Griffin Kruse

Published on Mar 10, 2015 at 1:10 PM
Updated on Apr 20, 2015 at 5:32 PM

Among the stocks gearing up to report earnings are restaurant newcomer Shake Shack Inc (NYSE:SHAK), doughnut maker Krispy Kreme Doughnuts (NYSE:KKD), and discount retailer Dollar General Corp. (NYSE:DG). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on SHAK, KKD, and DG.

  • Wall Street freshman SHAK debuted on Jan. 30 with an IPO price of $21, with the shares advancing 118.6% on their first day of trading to close at $45.90. Since then, though, the shares of Shake Shack Inc have dipped 4.7% to linger at $43.75. In accordance with SHAK's unimpressive price action, the brokerage bunch is skeptical of the equity. Drilling down, SHAK's consensus 12-month price target of $37 sits at an 18.2% deficit to current trading levels, and five out of six covering analysts rate the stock a "hold." What's more, analysts are predicting SHAK to report a fourth-quarter loss of 3 cents per share tomorrow night, when the company will make its first ever trip to the earnings confessional.

  • The shares of KKD have been in recovery mode since notching an annual low of $14.82 on Aug. 1, adding 38.1% to hit $20.47. Year-to-date, the equity is up 3.7%. However, put buying is nearing an annual peak in Krispy Kreme Doughnuts' options pits ahead of tomorrow night's earnings release. Specifically, KKD's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 3.95 sits just 6 percentage points away from an annual high. Traders hoping for post-earnings downside have history on their side -- in the session immediately following its last six earnings reports, KKD has shed an average of 10%, including a 20.2% dip in December 2013. Near-term options for the equity are currently available for historically inflated prices, as its Schaeffer's Volatility Index (SVI) of 67% sits in the 68th percentile of all similar readings taken over the past year.

  • DG has been a technical outperformer, with the shares up 19.6% year-over-year to reach $71.05. In fact, the stock just notched an all-time peak of $73.53 last Monday. However, puts are prevalent in Dollar General Corp.'s options pits as the company prepares to release fourth-quarter earnings Thursday morning. Over the past 10 weeks at the ISE/CBOE/PHLX, 1.74 DG puts have been bought to open for every call, which is the highest ratio recorded over the past year. Additionally, in the session immediately following its last six earnings reports, DG has advanced an average of 2.4%. Traders are paying slightly cheaper-than-usual prices for their short-term bets on the equity, as its SVI of 31% sits in the 41st percentile of its annual range.

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