Last Friday, the stock of coffeehouse chain Starbucks (NASDAQ: SBUX) declined nearly 4% to record a low of $56.57, before closing at $57.21. The unexpected resignation of the company’s CEO, Howard Schultz, caused panic among the investors, thereby resulting in a sharp decline in the share price.
Still, the closing price was much higher than the target price of the call option trade recommended on November 8th. Now, we believe that a new opportunity to take another long position on the counter has come up due to the reasons mentioned below.
Firstly, the CEO is not resigning due to any adverse issues. In fact, Schultz will now become the executive chairman of the company. The company’s current COO Kevin Johnson will take over the reins in April 2017. Johnson was hand-picked by Schultz, who came back after a gap of eight years, in 2008, to steer the company through the global economic crisis.
Since then, the company’s turnover has more than doubled and the stock has risen by sixfold. The company is now financially strong and the management is well-equipped to face any challenges. In fact, Johnson has the experience of working with Schultz for nearly two years and has been on the board since 2009.
Under the supervision and guidance of tech-savvy Johnson, the company rolled out the successful mobile ordering facility in the US. Starbucks is also increasing its spending on digital ventures. This includes attempts to take the app and rewards platform to China.
The investors were also concerned by the fact that Schultz, a supporter of gay marriage, is a well-known critic of Trump. To rest the concerns of investors, Schultz clarified that he is not anti-trump and wants the US President-elect to do really well as a policymaker.
The Seattle-based company is hosting the biennial Analyst Meeting scheduled to take place in New York on December 7th. Nomura’s analyst Mark Kalinowski believes that the company would reaffirm its 15% annual EPS growth over the next few years. That would take the share price to $70.
Kalinowski also expects that Starbucks would regain investors’ favor over the next 6-12 months. Thus, we forecast the stock to remain bullish during the holiday season.
Technically, the stock has received support at 57. The MACD indicator is making a U-turn in the negative zone, while the stochastic indicator is reversing from the oversold territory.
Thus, a trader should consider investing their surplus funds in a high or above option. The investment can be made as long as the price is near 57.50 level. The expiry date should be around the 13th of December.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
