Shopify Stock Rallies on Bank Upgrade Ahead of Earnings
Shopify Stock Rallies on Bank Upgrade Ahead of Earnings
Investors are now shifting their focus to the company earnings report scheduled for August
- Stock in Shopify is surging after the Bank of America upgraded its outlook.
- The bank’s forecasts call for improved profitability because of e-commerce growth and spending discipline.
- Investors are shifting their focus to earnings scheduled for Aug. 7.
Shopify (SHOP) traded 7% higher through afternoon trading today after Bank of America (BAC) analyst Bradley Sills upgraded the e-commerce company to a buy rating from neutral. Mr. Sills also increased the price target for the stock to $82 from $78.
The estimated date for Shopify’s second-quarter earnings is Aug. 7, but the exact date is subject to change. Yahoo Finance shows a consensus of $0.20 on adjusted earnings per share (EPS) for the quarter ending June 30. That would be up from EPS of $0.14 last year. The consensus revenue estimate stands at $2.01 billion.
Sills noted Shopify is positioned to balance profitability and growth under Chief Financial Officer (CFO) Jeff Hoffmeister following a period of declining profit margins. The note credits solid e-commerce growth and conservative spending, along with the ability to consolidate the U.S. small business market.
SHOP sank 17% after the company lowered its revenue guidance for the second quarter and reported negative EPS because of an impairment charge from the sale of its logistics businesses. Without that impairment, SHOP’s EPS stood at $0.20 in Q1.
Even with today’s price increase, SHOP remains about 11% lower from the start of the year. Shopify struck a deal with Target (TGT) last month that will place some Shopify sellers on Target Plus, enabling them to find select Shopify deals through the program. It would also put some of the better-selling items onto Target shelves.
Trading SHOP into earnings
SHOP trades with an implied volatility rank (IVR) of 78.4, and the Aug. 9 options expiration shows an expected move of +/- 9.42 points. That represents a 13.53% move from the current stock price.
For a trader who expects SHOP to maintain its bullish performance following the BAC upgrade, selling a put spread would take advantage of the volatility premium priced in the options. An example would be selling the 65 put near the 30 delta and buying the 63 put. This would provide a max profit of $71 and a max loss of $129 with a probability of profit (POP) of 65%.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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