Retailing giant Target (TGT) has been under considerable pressure since a massive breach of company computer systems exposed massive amounts of consumer data. The company has been in damage control mode ever since, leading at last to the resignation of Target CEO Gregg Steinhafel.
Despite attempts to reassure investors, TGT stock has suffered considerably.
Target does have a chance to boost flagging confidence. All it has to do is impress with its first-quarter earnings report slated for release ahead of the open this Wednesday.
But will the promise of new leadership be enough to turn around sagging sales and lackluster price action for TGT stock?
Wall Street is expecting Target earnings to come to 70 cents per share. The company has shown considerable outperformance in the earnings limelight, topping expectations every quarter for the past three years, according to data from Zacks.
This fundamental prowess hasn’t inspired much confidence from the analyst community, though. Thompson/First Call data indicates that only seven of the 24 brokerage firms following the TGT stock rate it a “buy” or better. Additionally, the current 12-month price target of $63 rests a mere 7.4% above Target’s Friday close at $58.64.
Short sellers are also taking advantage of the stock’s poor performance. As of the most recent reporting period, some 25.3 million shares of TGT stock were sold short, accounting for a respectable 4.2% of the stock’s total float.
Judging by options activity for TGT stock, short sellers are not all that worried about a rebound. Target’s total May/June put/call open interest ratio arrives at an elevated 1.36.
Typically, short sellers will buy call options to hedge their positions, especially ahead of unknown events like earnings, and with the popularity of TGT puts, it seems that very little (if any) hedging is taking place.
Click to Enlarge Technically speaking, TGT stock has rebounded from its February lows in the mid-$50s, but shares remain well off their November highs in the upper $60s. Until recently, TGT had bounced around between support at its 50-day and resistance at its 200-day moving averages. Shares recently breached this support, and are now staring up at both their 50-day moving average and round-number resistance at $60.
Traders looking to position themselves ahead of Target earnings will want to take note that weekly May option implieds are pricing in a potential post-earnings move of about 3.4%. This places the upper bound near $60.51 and the lower bound at $56.49.
2 Options Trades on TGT Stock
Bear Put Spread: For those inclined to go with the flow and bet against TGT stock, a June $55/$60 bear put spread offers a potentially nice return. At last check, this spread was offered at $2.10, or $210 per pair of contracts. Breakeven lies at $57.90, while a maximum profit of $2.90 is possible if TGT closes at or below $55 when June options expire.
Selling Puts: Alternately, if you are not all that confident in a decline in TGT stock, but don’t see any immediate upside potential either, a June $55 put sell might be a safe bet of capitalizing on technical support. At last check, the June $55 put was bid at 39 cents, or $39 per contract. The upside to this put sell strategy is that you keep the premium as long as TGT closes above $55 when June options expire. The downside is that should TGT trade below $55 ahead of June options expiration, you could be assigned 100 shares for each put sold at a cost of $55 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.