Green Mountain Coffee Roasters: Is A Jolt Coming?

Published on: Aug 02 2012 by admin

Green Mountain Coffee Roasters (GMCR) will report earnings after the close today. The consensus estimate of analysts covering the specialty coffee maker is $.49, an over 11% increase from last year’s third quarter. The revenue number is expected to be $874 million, an 22% increase from last year. (Source: Click Here)

Currently, 15 analysts have a rating on GMCR with 2 maintaining Buy ratings, 6 Outperform, 6 Holds and 1 Underperform/Sell. It is interesting to note that there are only 1 analysts with a negative rating on the company despite the massive underperformance (-82%) of the underlying over the past year. One possible rationale for this lack of sell recommendations by the analyst community is the price movement of GMCR may have left some wondering if the massive selloff from 52 week high of $115.79 is overdone.

Options Plays

Trade idea #1-A Long Options Premium Play

In the last 4 earnings announcements, the company is batting .500, having beaten expectations twice and fallen short the same number of times.

Confused on what to do with the earnings? Long or short? How about playing both ways?

As the chart below shows, the average move post-earnings over the past year has in GMCR has been 31.7%. In the last four earnings cycle, GMCR has moved 47.7%, 23.8%, 38.9% & 16.41% respectively.

This is not a specific trade recommendation, but a trade analysis.

The play:

a) Buy the August 19 2012 weekly 18 straddle for $4.40

Net debit: $4.40

Why the 18 strike line? You are buying the At-the-Money (ATM) straddle for $4.40. The breakevens for this straddle in the underlying are $22.40 and $13.60, respectively. These breakeven points represent a 24.4% move in the underlying. Is that justified? Apparently so if you believe that the past is any indicator of the future as the average post-earnings move in GMCR over the last four earnings cycles has been 31.7%.

Risk: The risk of this trade is $4.40 and may occur if the earnings report does not cause the expected movement in the underlying. Be forewarnedYou may lose the entire premium. This play is for speculative monies only.

Trade idea #2-An Upside Play

Buying options that only pay off with a 23% move. A bargain? If you are in the camp that feels this is too rich for your risk tolerance, then we present an upside options play.

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One Comment to “Green Mountain Coffee Roasters: Is A Jolt Coming?”

  1. TechTrader says:

    Green Mountain Coffee Roasters ($GMCR) surprised on earnings. Shares are undervalued.

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