Green Mountain Coffee Roasters (GMCR), the producer of fair trade, organic gourmet coffees and owner of the Keurig Brand, is scheduled to report earnings on Wednesday after the market close.
While GMCR shares are up over 45% year to date, the stock has stumbled since mid-September when it entered a downtrend. Shares have traded in a 52-week range of $27.54-$89.66, having hit their recent high on August 29th. Shares closed the day Monday at $63.41, having risen 5 of the past 7 sessions.
EARNINGS OUTLOOK
Consensus analyst estimates point to EPS of $0.75 on $963.8 million in revenue, a 2% increase from one-year prior. While the company has posted 3 consecutive quarters of revenue growth, the recent decline in share price could be partially attributed to investor concerns about growing competitive threats. While Green Mountain has successfully partnered with Starbucks, Whole Foods is another story. While there is no relationship between Green Mountain Coffee and Whole Foods, the latter sells Keurig-compatible cups under its own moniker.
Historically, GMCR has been a big earnings mover, with a mean move of 25.1% over the past 8 quarters. The company has moved up 2 of the 4 quarters, and 4 of the past 8. The near-term, at-the-money straddle is implying less than half the historical move, only about 12.3%.
MY TRADE
Buy the GMCR Nov Weekly 68-70 Call Spread for about $0.50
Risk: $50 per 1 lot
Reward: $150 per 1 lot
Break-even: $68.50
With the high move being implied, I don’t mind having to go a little bit further out-of-the-money than usual to get a good risk-reward setup.
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