You Should Buy the New Birthday Cake Frappuccino, but What About SBUX Stock?

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To help celebrate the 20th anniversary of Starbucks’ signature frozen drink, the Frappuccino, Starbucks will be offering a birthday cake flavored Frappuccino for a limited period of time. Of course the drink will be delicious but is Starbucks stock looking appetizing to investors at this level?

Starbucks Corporation (SBUX) operates in 65 countries around the world and is one of the largest roasters and retailers of coffee and other food and beverage items. The company’s stock is currently trading around $94.80 in a 52 week range of $67.93-$99.20. SBUX has been performing very well this year with shares rallying more than 15% year to date. Despite red hot growth over the past 5 years analysts are still expecting SBUX earnings and revenues to grow over 15% this year. The addition of new food and beverage offerings at certain stores aims to spur new growth for the company.

The stock recently touched new 52 week highs on the announcement the stock will undergo a 2-1 split. The move is meant to increase shareholder value and liquidity ahead of what CEO Howard Schultz expects to be the next leg higher in SBUX earnings growth. With increasing revenues from food and other beverage sales and growth in earnings expected how can a trader take a long term position in SBUX using options?

With the options market implying a $8.80 move in the stock through July expiration we can calculate an upside target around $103.60.

Potential Trade: Buying the SBUX Jul 87.5 Calls for $9.00
Risk: $900 per 1 lot
Reward: Unlimited
Breakeven: $96.50

These calls have a 75 delta meaning they will behave just like a stock position but have a much more defined downside risk.

Andrew Keene

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