SBUX: Q1 Preview, Implied Move and A Way to Fade

by Dan January 26, 2012 3:19 pm • Commentary

SBUX ($47.80) – report their fiscal Q1 after the bell.

-Options market is pricing about a 4% move which is rich to the 4 qtr avg move of about 2% and the 8 qtr avg of about 2.5%

-stock under-performs the SPX ytd by about 1%, but trades only about 1% off of its all time high made last week.

-SBUX trades 26x 2012 earnings that are expected to grow at about 21%, with sales growth at only 11%.

MY TAKE: SBUX is not a company that I follow closely, but as many of you know I am not a buyer of stocks that trade at all time highs in a market that I think is getting a bit frothy.

I am not playing, but if you were looking for a low’ish premium way to play an outsized move back to the $45 support level in Feb following earnings, you could consider a Put Fly.

I have gotten a ton of questions on the name and almost all readers want bearish trades, with the high implied move (rich short dated options), this seems like a decent way to play if you were so inclined.

SBUX $47.80 Buy Feb 47/45/43 Put Fly for .38

-Buy 1 Feb 47 Put for 1.25

-Sell 2 Feb 45 Puts for a total of 1.10 (.55 each)

-Buy 1 Feb 43 Put for .23

Break-even On Feb Expiration:

Profits btwn 46.62 and 45 make up to 1.62, max gain at 45.00 of 1.62, profits trail off btwn 45 and 43.38

Losses of up to .38 btwn 46.62 and 47, and btwn 43.38 and 43, with max loss of .38 above 47 or below 43

Trade Rationale: As I said I don’t have strong conviction, so I am not playing, But if I had a good reason to I would probably lean short, there has to be a good deal of good news in the name at current levels……Also coupled with my increasingly short term bearish market view I think it makes sense to lean short names that have outperformed the broad market over the last few months.  Investors may look to take some profits in these sorts of high valuation names near their highs.



Bloomberg’s very detailed preview of SBUX fiscal Q1 earnings:

Starbucks may update FY2012 EPS forecast, coffee cost outlook when it reports 4Q postmkt today.

• 1Q adj. EPS est. 49c (range 46c-52c)
• 1Q rev. est. $3.29b (range $3.15b-$3.41b)
• 1Q comp sales est. up 7.6% (avg. of 8)
• U.S. est. up 7.6%, intl est. up 6% (avg. of 7)
• NOTE: SBUX to start reporting retail performance by region in today’s results; comp ests. for new segments (avg. of 5):
• Americas est. up 8.2%; EMEA est. up 3.4%, China/Asia Pacific est. up 16.5%
• May update FY2012 EPS forecast, saw EPS $1.75-$1.82 in Nov., est. $1.83; sees opening net 800 stores globally
• Sales of SBUX-branded K-Cups for GMCR’s Keurig brewers accelerated in Dec. to $7m from $4m in Nov., William Blair citing IRI data
• SBUX had 0.94% share of K-Cups in 4Q vs DNKN 1.3%: Keybanc, citing Study Logic data
• NOTE: SBUX in Nov. saw K-Cups adding 3c-5c to FY2012 EPS
• SBUX in Nov. saw higher coffee costs hurting FY2012 EPS by 21c, with ~18c of that impact hitting in 1H
• Co. has raised prices on some drinks in U.S. Northeast, Sunbelt and Chicago
• May open first store in India in 2H in alliance with Tata Coffee