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Earnings Preview: Constellation Brands, Inc. (STZ)

Constellation Brands, Inc. (STZ) is set to deliver earnings tomorrow, but the stock is staring up at multiple layers of resistance, as option traders bet on a post-earnings win

Jan 4, 2017 at 12:49 PM
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As Constellation Brands, Inc. (NYSE:STZ) prepares to present earnings tomorrow morning, option traders seem hopeful. On top of the pre-earnings hype, BofA-Merrill Lynch today upgraded the alcoholic beverage maker to "buy" from "underperform," and hiked its price target to $175 from $155 -- all-time high territory. As the stock -- one of the few to sit out the "Trump rally" -- stares up at multiple points of resistance, option traders are betting on yet another post-earnings win for the shares of STZ.

So far today, STZ has managed to tack on 1.4% to trade at $156.90, but earlier rallied as high as $158.25. The shares have run into resistance in the $158 region several times since their post-election bear gap -- which was fueled by uncertainty around companies with notable ties to Mexico, like Corona maker Constellation Brands -- and $158 is currently home to STZ's 60-day moving average. Above that, STZ is staring up at possible resistance from its 80-day and 200-day moving averages, which are on the cusp of forming a death cross.

170104STZ

Volatility expectations are naturally elevated ahead of earnings; STZ's 30-day at-the-money implied volatility of 29.4% is in the 92nd percentile of its annual range. While the options market is pricing in a higher-than-average single-session move of 4.7% after earnings, STZ's Schaeffer's Volatility Scorecard (SVS) is docked at a meager 4, indicating the stock has tended to underperform volatility expectations over the past year. For reference, over the last eight quarters, STZ has averaged a one-day post-earnings swing of 2.9%, ending in the black seven times.

In the option pits, investors seem to be looking for a repeat performance from STZ. Constellation Brands, Inc. (NYSE:STZ) currently sports a 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 2.07, which sits in the 79th percentile of its annual range. This indicates option buyers have been especially bullish over the past two weeks, buying to open calls at more than twice the rate of puts. Meanwhile, STZ's Schaeffer's put/call open interest ratio (SOIR) of 1.19 sits in the 73rd percentile of its annual range, suggesting near-term traders are more put-skewed than usual -- however, this is likely skewed by the heavy sell-to-open activity at the January 2017 150-strike put, which is STZ's top front-month open interest position. 

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