Option Trade 
Starbucks Corporation (NASDAQ:SBUX) Calls 
Thursday, October 29, 2015

**OPTION TRADE: Buy the SBUX Jan 2016 62.500 call (SBUX160115C00062500) at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

by Ian Harvey

October 29, 2015

Starbucks Corporation (NASDAQ: SBUX) will report earnings after markets close today, Thursday 29th. The roaster, marketer and retailer of specialty coffee in the world is forecast to report $4.9 billion in revenue, up from $4.18 billion in the year-ago period. Unadjusted net profit is expected to be $649.5 million, or 42 cents per share, up from $587.9 million, or 39 cents per share. Starbucks Corporation shares are trading around $62.61. Starbucks shares have gained nearly 53 percent since the start of the year.

Starbucks Corporation is growing like crazy. The company's guidance is for full-year revenue to grow 16%-18%, which is in line with the sales growth the company reported in the first three quarters of the year.

One concern, though, is Asia -- especially China. Starbucks is opening more stores in this key market than any other and is counting on having the majority of its growth, over the next decade, to come from this part of the world.

However, like Apple, which just reported a stellar quarter in China, Starbucks' own results in China/Asia Pacific -- the region it calls "CAP" -- seems that a precipitous drop in sales is unlikely. Over the past three quarters, same-store sales in CAP have increased by 8%, 12%, and 11%, with increased traffic, not price increases, accounting for almost all of the growth.

Starbucks has used both company-operated and franchise-owned business models in different parts of the world. The company used licensees to build its large Japanese business, but with growth in that market slowing, and operating results stagnating, Starbucks decided to buy essentially all of the Japanese locations, and they're now part of the company's core operations. In China and EMEA, however, licensed stores make up the vast majority of new locations, as working with local operators has proved to work well in these markets – which, using this approach has helped improve operating margins in nearly every market in recent years and therefore has been key to the company's ability to grow operating income and net income at a faster rate than sales. Look for Starbucks to continue this trend.

So far this year, Starbucks has made two significant hires, starting with COO Kevin Johnson in January. Johnson is a longtime board member and had been CEO of Juniper Networks until 2013, and before that he was an executive at Microsoft. More recently, the company hired Gerri Martin-Flickinger to serve as chief technology officer. Martin-Flickinger comes from Adobe, where she served as CIO.

At roughly $62.00, Starbucks’ share price is up an astonishing 53% so far this year. When you look at the underwhelming returns many restaurant stocks or specialty eateries are putting up, the Starbucks outlook remains encouraging.

In the third quarter, the company reported record quarter revenue and record earnings per share. Third-quarter revenue was up 18% year-over-year at $4.9 billion. While net income increased 22.2% to $626.7 million or $0.41 per share, versus $512.6 million or $0.34 per share in the same prior-year period.

During the quarter, the company opened 431 net new stores, bringing its global empire to 22,519 stores. Despite it feeling like there is a Starbucks on every corner, the company continues to attract more and more customers. Year-over-year comparable store transactions increased by roughly 18 million in the U.S. alone and over 23 million globally.

The company recently announced a licensing agreement with Casino Restauration that will open Starbucks stores within Géant Casino Hypermarkets and Casino Supermarkets across France. It also inked a licensing partnership with Taste Holdings to open Starbucks stores across South Africa, starting with Johannesburg which is expected to open in 2016. This will be Starbucks’ first store in Sub-Saharan Africa.

While unconfirmed by Starbucks, word on the street is that the company is in talks to open branches in Italy—a country that knows a thing or two about coffee and boasts the seventh-highest per capita coffee consumption in Europe. The deal is expected to be signed by Christmas.

The best period in stocks is about to begin. And a robust company like Starbucks should be able to ride the bullish sentiment higher; especially on the heels of the strong momentum from the S&P 500, Dow Jones Industrial Average, and NASDAQ.

That’s because studies show that the Halloween effect is more pronounced when the stock market is able to buck the downward trend of the last two months of the summer period (September to October).

Wall Street is clearly excited about the financial implications of Starbucks' growth strategy. Besides the optimistic signal being sent by a record stock price, the retailer also just received glowing praise from Moody's, the debt-rating agency. While upgrading its bond rating, Moody's highlighted Starbucks' "strong and consistent operating trends driven by new product offerings, greater day part diversity, well accepted loyalty program and e-commerce initiatives that have resulted in strong credit metrics and excellent liquidity."

The research service said its confidence was boosted by the retailer's "global brand strength, dominant position in the U.S. specialty coffee segment, global diversification, significant scale, and balanced financial policy."

According to 20 Analysts, The short term target price has been estimated at $ 63.75 and could hit a high of $98.00.

The company has received an average rating of 1.4 from 24 brokerage firms. 18 analysts have rated the company as a strong buy. The company has been rated as hold from 4 Wall Street Analysts. 2 analysts have suggested buy for the shares.

Harvey’s Options Volatility Indicator

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the SBUX Jan 2016 62.500 call (SBUX160115C00062500) at approximately $3.00. Place a pre-determined sell at $6.00.

Note: No protective stop losses added -- but if you wish to do so make it $1.20.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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