Option Trade 
Starbucks Corporation (NASDAQ:SBUX) Calls
Thursday, January 21, 2016

**OPTION TRADE: Buy the SBUX Apr 2016 60.000 call (SBUX160415C00060000) at approximately $1.80. Place a pre-determined sell at $3.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

by Ian Harvey

January 21, 2016

Starbucks Corporation (NASDAQ: SBUX) will report earnings after markets close today, Thursday 21st. The roaster, marketer and retailer of specialty coffee in the world is likely to report first-quarter sales slightly above analysts' average estimate when its reports earnings.

The company, which had a couple of robust quarters last year, delivered a disappointing profit forecast for the holiday quarter, citing a strong dollar. Known for starting its fiscal years with conservative estimates, the company has also locked in prices on more than 90 percent of its coffee needs for 2016.

At 27 times 2017 earnings estimates, SBUX stock isn’t overly pricy, especially when you consider that it traded at exactly the same forward P/E this time a year ago.

With 2016 sales and earnings growth expected to match last year’s growth numbers, another 47% return in SBUX this year isn’t out of the question, particularly if the broad market stabilizes. Plus, having slipped from $63 to $59 since late October, this provides a good entry point.

Excluding one-time charges, analysts expect Starbucks to report net income of 45 cents per share in the three months ending December, up from 40 cents in the same period last year, when adjusted for a stock split last April. Quarterly revenue is expected to grow to $5.39 billion, from $4.80 billion in the year-ago period, a 12.3 percent rise.

Starbucks is starting its 2016 fiscal year having emerged from what CEO Howard Schultz called a “stunning” same-store sales performance. Global sales of stores open for at least 12 months jumped 8 percent globally in the fiscal fourth quarter that ended last September. The first three months of the current fiscal year, which includes the 2015 holiday shopping season, may offer the first glimpse of whether Starbucks can maintain its momentum.

Starbucks' next earnings report comes a week after it announced plans to open 2,500 more stores in China by the end of the decade, up from the current 1,800. Schultz and other company leaders have dismissed concerns about China’s slowdown.

And there’s reason to believe them. When China released its annual growth figures on Tuesday, it affirmed what everyone had already expected -- China's retail sales grew 11.1 percent in December compared to the same month the previous year.

According to Euromonitor International, Chinese appetite for coffee is growing at an annual pace of 18 percent. Starbucks is betting that slowdown or not, China is where the bulk of its future growth lies.

Harvey’s Options Volatility Indicator


So while it tinkers with new ways to draw American consumers to its stores, its trusted model for growth — stores that sell an array of hot beverages and baked items — is just starting to take hold in China.

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

**OPTION TRADE: Buy the SBUX Apr 2016 60.000 call (SBUX160415C00060000) at approximately $1.80. Place a pre-determined sell at $3.60.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

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