Starbucks Stock Plummets on Disappointing Earnings and Outlook

Options traders were put-heavy ahead of the report

Managing Editor
Jan 26, 2018 at 10:03 AM
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Shares of coffee chain Starbucks Corporation (NASDAQ:SBUX) are trading lower in early market action, after the company reported lower-than-expected fiscal first-quarter earnings. It also gave a tepid outlook for 2018, while executives added they're still evaluating how the tax law will affect the business. At last check, Starbucks stock was trading down 4.7% at $57.72, after receiving a slew of mixed analyst attention.

SBUX has received no fewer than three price-target raises and one price-target cut before today's bell, with the most notable raise coming from Instinet, to $68 from $63. The single cut came from brokerage firm RBC, to $65 from $66. However, both targets sit well above the stock's current level of trading.. 

In the options pits, traders were leaning towards the bears' camp ahead of earnings. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the security's 10-day put/call volume ratio of 1.22 ranks in the 96th percentile of its annual range. This suggests that puts have been bought to open over calls at a faster-than-usual clip during the past two weeks.

Extending the pessimistic outlook, short interest has risen almost 6% during the past two reporting periods, and accounts for just 2.3% of the stock's total available float. At SBUX's average daily trading volume, it would already take one week for shorts to cover their bearish bets -- but this technical weakness could prompt more short selling. If this does occur, it'd be yet another headwind for the coffee giant.

Brokerage firms have mostly remained optimistic, too. Of the 25 analysts following the stock, 20 have handed out "buy" or "strong buy" recommendations. Considering SBUX is once again negative on a year-over-year basis, it would not be surprising to see more analysts cut their outlooks.

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