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Facebook (FB) stock could have big upside following Q4 earnings

What's Happening

Social media leader Facebook ( FB ) will report its fourth-quarter numbers after the market close January 30. The consensus calls for earnings of $2.17 per share, up from $1.44 during the same period last year. FB stock sold off during the second half of 2018 but has started to recover slightly. However, the stock remains down 24% since the start of July.

Technical Analysis

FB stock was recently trading at $149.40 down $69.22 from its 12-month high and $26.38 above its 12-month low. InvestorsObserver's Stock Score Report gives FB a 48 long-term technical score and a 40 short-term technical score. The stock has recent support above $130 and recent resistance below $155. Of the 34 analysts who cover the stock 23 rate it Strong Buy, 4 rate it Buy, 7 rate it Hold, 0 rate it Sell, and 0 rate it Strong Sell, FB gets a score of 58 from InvestorsObserver's Stock Score Report.

Analyst's Thoughts

Facebook faces a couple tough hurdles. Users are still weary over privacy concerns after last year's data scandal, and the company is losing its grip on the all-important young adult demographic. Advertisers have yet to flee the company and its massive audience, but there is fear that if Facebook continues to make headlines regarding user privacy that traffic will start to drop significantly, and advertisers will start to sever ties with the social media leader. However, at least for now, earnings continue to rise. And analysts forecast average annual earnings growth of 18% for the next five years.

Given the company's history of posting big earnings surprises the forecast could be greatly understating what the future actually holds for the company. Facebook is also losing the teen audience with other platforms like Instagram and Snapchat gaining in relevance. Facebook does own Instagram, as well as the popular messaging platform WhatsApp, and both could turn into major revenue streams the company may need if the company is unable to reengage the teen market.

There is a lot of negativity priced into the stock at this time, so strong numbers on the top and bottom line could result in big upside following the report. The street expects a decen t earnings beat with a whisper number of $2.26 and analysts have an average price target of $192.65 on the stock.

Stock Only Trade

Bullish Trade

If you want a bullish hedged trade on the stock, consider a 4/18/19 115/120 bull-put credit spread for a $0.40 credit. That's a potential 8.7% return (38% annualized*) and the stock would have to fall 20% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an 4/18/19 180/185 bear-call credit spread for a $0.40 credit. That's a potential 8.7% return (38% annualized*) and the stock would have to rise 20.5% to cause a problem.

Covered Call Trade

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Originally published on InvestorsObserver.com


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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