Retailer Macy’s Inc (NYSE:M) will join the dwindling list of companies reporting earnings this week, stepping up to release its second-quarter report ahead of the open this Thursday.
The company will be looking to recover from its first-quarter report, when Macy’s lowered its earnings guidance, eliciting an 18% plunge in M stock. What’s more, retailers were hammered last week ahead of July’s jobs data, and Macy’s stock is only just recovering.
Overall, Wall Street isn’t expecting much out of Macy’s quarterly report. The consensus is looking for a profit of just 45 cents per share — a year-over-year decline of 36%. Revenue is seen falling 5.9% to $5.74 billion. That said, expectations may be even lower, with EarningsWhispers.com reporting a whisper number of 43 cents per share.
Additional sentiment indicators also reveal low expectations. For instance, data from Thomson/First Call reveals only four buy ratings compared to 18 holds. Furthermore, the 12-month consensus price target for Macy’s stock comes in at $38.61, representing a premium of only about 11.1%.
M Stock Chart
Click to Enlarge Macy’s options backdrop is far from clear cut, however. The short-term weekly August 12 series put/call open interest ratio indicates a reasonable degree of pessimism, arriving at 0.71.
On the other hand, the August/September ratio comes in at 0.43, with calls more than doubling puts among all options set to expire within the next two months.
In other words, while options traders are cautious ahead of this week’s report, they are expecting M stock to rally heading into September, and, assumedly, the holiday shopping season.
Overall, weekly August 12 series implieds are pricing in a potential post-earnings move of about 6% for Macy’s stock. This places the upper bound at $36.84, while the lower bound lies at $32.66. On the upside, M stock is facing stiff technical resistance in the $37-$38 region, while support should hold near $31-$32.
2 Trades for Macy’s Stock
Call Spread: With expectations already low, any sliver of positive news should help push M stock higher. In fact, as long as Macy’s doesn’t cut guidance heading into the holiday’ shopping season, the path of least resistance should be up. Traders looking to bet bullish on Macy’s ahead of earnings might want to consider a Sept $36/$37 bull call spread.
At last check, this spread was offered at 31 cents, or $31 per pair of contracts. Breakeven lies at $36.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if M stock closes at or above $37 when September options expire.
Put Sell: If you’re not convinced that Macy’s has the buying strength to push higher, but are not sold on the idea that the shares will plunge following earnings, then a weekly August 12 series $30 put sell may be just the option you’re looking for. At last check, this put was bid at 8 cents, or $8 per contract.
As long as Macy’s trades above $30 through August expiration at the end of this week, traders will keep the initial premium received. If M stock trades below $30 before Friday’s close, however, you may be assigned 100 shares for each contract sold at a cost of $30 each.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
