How To Trade Starbucks Stock Heading Into Q2 Earnings

Starbucks Corporation SBUX is set to print its second-quarter financial results after the market close. The stock was trading slightly lower heading into the event and remains down over 40% from the July 23 all-time high of $126.32.

After the multi-national coffee chain printed its first-quarter results on Feb. 1, the long-term downtrend accelerated. For the first quarter, Starbucks reported weak earnings, with an adjusted EPS of 72 cents compared to the analyst estimate of 80 cents. The company reported revenue of $8.05 billion, however, which beat analysts estimate of $7.95 billion.

For the second quarter, Zacks expects Starbucks to report an EPS of 60 cents on revenue of $7.61 billion.

See Also: What's Going On With Starbucks Shares Today?

On April 25, UBS Maintained its Neutral rating on Starbucks and lowered the price target to $86. The price target implied a 17% move to the upside.

From a technical analysis standpoint, Starbucks’ stock appears neutral heading into the event as the stock is flashing both bullish and bearish indicators. Of course, holding stocks or options over an earnings print is akin to gambling because stocks can react bullishly to an earnings miss and bearishly to an earnings beat.

Options traders particularly, those who are holding close dated calls or puts, take on extra risk because the intuitions writing the options increase premiums to account for implied volatility.

The implied move for options of Starbucks expiring this week is 6.4%.

Want direct analysis? Find me in the BZ Pro lounge! Click here for a free trial.

The Starbucks Chart: Starbucks’ most recent lower high in its downtrend was printed on April 28 at $77.10 and the most recent confirmed lower low was formed at $74.68 the day prior. On Monday and Tuesday, Starbucks tested the $73.47 area as support and wicked up from the level.

• Starbucks’ reaction to the $73.47 level has caused the stock to print a possible bullish double bottom pattern. If Starbucks receives a positive reaction to its earnings print, the pattern is likely to confirm on Wednesday with higher prices.
• If the reaction to Starbucks’ earnings is negative, the stock will continue in its downtrend and print another lower low under the double bottom level, which would also confirm Tuesday’s high-of-day is the most recent lower high.
• Starbucks has a number of gaps above on its chart, with the closest gap between $88.46 and $90.48. Gaps on charts fill about 90% of the time, which makes it likely Starbucks will rise up to fill the empty trading range in the future. If Starbucks does, it would represent a 21% move to the upside.
• Starbucks has resistance above at $76.69 and $79.18 and support below at $73.47 and $71.06.