Wedbush Loses Patience with Staggering Starbucks Stock

SBUX options traders have been growing bearish, too

Managing Editor
Mar 29, 2018 at 9:58 AM
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Starbucks Corporation (NASDAQ:SBUX) stock is lower today, down 1.4% at $57.09, after Wedbush downgraded the coffee giant to "neutral" from "outperform," while slashing its price target to $56 from $70. According to the brokerage firm, "We no longer see drivers of upside to same store sales growth and EPS consensus expectations in 2018 and see rising risks to 2019 expectations." It also added that future China growth could fall short of expectations.

The news has Starbucks back below breakeven for the year, with shares again testing support at their 200-day moving average. Looking back further, the equity has shed roughly 12% since its record high of $64.87 from early June, and for the most part has spent its time churning between $55 and $60 since mid-2015.

Analysts remain in the security's corner, for now. Of the 26 brokerages that are covering Starbucks stock, 19 rate it a "buy" or "strong buy." Furthermore, SBUX's average 12-month price target of $63.82 represents a nearly 12% premium from the stock's current perch. This indicates the security could be susceptible to more downgrades and/or price-target cuts in the future.

Short sellers have continued to target the security, though. Short interest increased by nearly 22% during the last two reporting periods to 36.75 million shares, the most since 2010. However, this still only represents roughly 2.7% of SBUX's total available float, indicating there is plenty more room aboard the bearish bandwagon. 

In the options pits, puts have become more popular in recent months. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 0.99, ranking 3 percentage points from a 52-week high. In other words, puts have been purchased over calls at a much faster-than-usual clip. Those looking to bet on Starbucks using options must pay up, however, according to its 30-day at-the-money implied volatility of 27.2%, ranking in the 99th annual percentile. 

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