Facebook Inc (NASDAQ:FB) is scheduled to release its next earnings report on July 23. Analysts at Susquehanna Financial Group remain bullish on the social network, although they understand that some investors might be hesitant to get into the company because of the historical volatility around its last several earnings reports. As a result, they recommend the July 25 calls with a strike price of 64.5.
Facebook price target increased
In a report dated July 11, 2014, analyst Christopher Jacobson said Facebook Inc (NASDAQ:FB) remains one of their top picks heading into earnings. His colleague, analyst Brian Nowak, increased his price target for the social network last week from $72 to $76 per share and reiterated his Positive rating.
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The analyst said their checks of Facebook’s ad numbers have been positive although cost per impression has remained low. However, it’s still rising, ad pricing for app install ads has increased as well—by 100% year over year. He thinks the social network’s unique log-in data, which allows advertisers to target users better and differentiates it from other online ad platforms, is also “pulling in more ad dollars.”
Facebook stock historically volatile around earnings
Jacobson notes that over the eight quarters in which Facebook Inc (NASDAQ:FB) has reported earnings as a public company, its stock has been extremely volatile. He also notes “volatility of volatility,” with share price moves ranging from -.8% in the last quarter up to +29.6% in the second quarter of last year. Since that time, he reports that the social network’s stock have moved + / – 10.5% around earnings reports, with the median move being =+ / – 8.7%.
The reason Jacobson recommends the July 25 weekly options is because they seem to price in a high single digit move, “based on both forward volatility spreads and absolute straddle levels.” He thinks that Facebook’s earnings volatility looks to be “fair” at worst. Based on his projections, he recommends the July 25 weekly 64.5 calls. At the time of his report, they were selling for $3.25, which sets up an expiration breakeven level of $67.75, which is a 4.4% increase, thus limiting risk on the downside for the cost of the calls.
Shares of Facebook Inc (NASDAQ:FB) rose as much as 2% during regular trading today.