Facebook reports earnings November 1

What's Happening

Social media giant Facebook ( FB ) is expected to announce its third-quarter results on November 1. The company will report after the market close, with the consensus calling for earnings of $1.29 per share, versus $1.09 during the same period last year. The stock is up 46.1% on the year.

Technical Analysis

FB was recently trading at $170.69, down $6.05 from its 12-month high and $57.14 above its 12-month low. Technical indicators for FB are bullish and the stock is in a strong upward trend. The stock has recent support above $168.90 and has recent resistance below $176.75. Of the 24 analysts who cover the stock, 20 rate it a "strong buy", three rate it a "buy", and one rates it a "hold". FB gets a score of 74 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

Facebook has been one of the top performing stocks in recent years, as the social media giant continues to grow and find new ways to monetize its more than 2 billion active monthly users. The company's earnings growth has been phenomenal, with earnings up 67.0% per annum over the last five years, and analysts expect to see annual earnings growth of 27.9% over the next five years. Other than a rare earnings miss in May, the company has enjoyed a very strong earnings track record, with earnings and sales consistently coming in better than expected. The market appears to expect another big beat for the recent quarter. The consensus calls for earnings of $1.29 per share, but the Street has a much higher whisper number of $1.40 for the quarter, so expectations are high. This is a good a bad thing, since the strong expectations have been priced into the stock, so any signs of weakness could result in a big dip in share price. The stock has a P/E of 38, which is a bit high, but given the stock earnings growth forecasts the valuation is not too high to put a ceiling on the stock and prevent shares from moving higher should the quarterly numbers match or exceed estimates.

Stock Only Trade

If you're looking to establish a long stock position in FB, consider buying the stock under $171.00. Sell if it falls below $154.00 or take profits if it gets to $197.00.

Bullish Trade

If you want to set up a bullish hedged trade on FB, consider a January 135/140 bull-put credit spread for a 25-cent credit. That's a potential 5.3% return (22.6% annualized*) and the stock would have to fall 17.8% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a January 200/205 bear-call credit spread for a 35-cent credit. That's a potential 7.5% return (32.3% annualized*) and the stock would have to rise 17.4% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a January $170 covered call. Buy FB shares (typically 100 shares, scale as appropriate), while selling the January $170.00 call for a debit of $161.50 per share. The trade has a target assigned return of 5.3%, and a target annualized return of 22.9% (for comparison purposes only).

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