Starbucks Stock Grounded By Weak Sales Outlook, Bear Notes

Options traders are piling on SBUX stock today

Managing Editor
Jun 20, 2018 at 10:19 AM
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Starbucks Corporation (NASDAQ:SBUX) shares are sharply lower this morning, down 5.6% to trade at $54.22, after the coffee giant reported, to the surprise of analysts, lower-than-anticipated third-quarter same-store sales outlook, while also announcing it would be closing 150 U.S. stores next fiscal year. In response, Morgan Stanley downgraded SBUX to "equal weight" from "overweight," while slashing its price target to $59 from $72. In addition, seven other brokerages issued price-target cuts, including to $50 from $70 at Telsey Advisory Group, which also downgraded SBUX to "market perform." 

Starbucks stock is now on track for its worst day since July 28, and is trading below the $55 mark for the first time since February. Prior to today's drop, SBUX was sitting right at its year-to-date breakeven point. Since May, however, the shares have seen their 50-day moving average stymie any breakouts. 

Despite the flurry of analyst attention today, brokerages still lean in favor of SBUX stock. Of the 25 brokerages covering the security, 16 rate it a "buy" or "strong buy," with not a single "sell" on the books. Furthermore, SBUX's average 12-month price target of $62.08 sits comfortably above the stock's current perch. Should Starbucks stock continue to languish in mediocrity, more downgrades could pressure it lower. 

In the options pits, put buying has been a growing trend. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.86 ranks in the 79th annual percentile. This indicates that, although calls have outpaced puts on an absolute basis, the rate of put buying has been quicker than usual.

Shifting gears to today, puts are flying off the shelves at 16 times the average intraday pace. Already 38,000 puts have changed hands, with volume pacing in the 99th percentile. The weekly 6/29 55.50-strike put and July 54 put are the most active, with new positions being opened at the latter. 

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