The retail sector was on fire last week, and Target Corporation (NYSE:TGT) stock holders are hoping the trend carries over as Target steps into the earnings limelight Wednesday. TGT stock, however, is being dogged by pessimists, While last week’s strong retail showing holds promise for a positive reaction. Still, Target is in a precarious position.
Checking in with expectations, Wall Street expects a per-share profit of $1.12 from Target, down ten cents from the same quarter last year.
On the revenue side, the Street expects sales to slip 7.2% to $16.17 billion on the quarter. While estimates have been revised lower in the past 60 trading days, the whisper number still rests near $1.15 per share.
Overall, however, sentiment ahead of earnings is heavily bearish toward TGT stock. According to Zacks, 10 of the 17 analysts following Target Corporation rate the stock a “hold” or worse. The 12-month consensus price target, meanwhile, rests at $77.55 — a mere 2.3% premium to Friday’s close.
Meanwhile, short interest jumped 9% during the most recent reporting period, leaving TGT stock with roughly 37 million shares sold short, or about 6.3% of its total float.
What’s more, judging by the options pits, these short sellers don’t appear to be nervous in the least. Currently, the August/September put-call open interest ratio for TGT stock rests at 1.08, with puts outnumbering calls among options set to expire within the next two months.
This ratio soars to 1.42 when we look at just the Aug. 19 series open interest configuration — or those contracts most affected by Wednesday’s report.
Overall, Aug. 19 series implieds are pricing in a potential post-earnings move of about 4.2% for TGT stock. This places the upper bound at $79.21, while the lower bound lies at $72.79. Technically, TGT stock has eclipsed its 200-day moving average and $75 ahead of the event, but shares are nearing overbought territory, weakening the bullish case.
2 Trades for TGT Stock
Call Spread: Pessimism toward an underperforming stock is to be expected, and while TGT wasn’t in a downtrend prior to last week’s retail rally, it certainly wasn’t in rally mode either. With the holiday shopping season just around the corner, Target stock, fueled by expectations, should trend higher. As such, guidance will be key this week.
Traders looking for bearish sentiment to unwind following an in-line report and positive guidance might want to consider a Sept $77.50/$80 bull call spread. At last check, this spread was offered at 66 cents, or $66 per pair of contracts. Breakeven lies at $78.16, while a maximum profit of $1.84, or $184 per pair of contracts, is possible if TGT closes at or above $80 when September options expire.
Put Spread: On the other hand, TGT bears may be onto something, and the stock could be set for a “sell-the-news” event following earnings — especially with the recent run up. Traders siding with the bears might want to consider a Aug $73.50/$75 bear put spread. At last check, this spread was offered at 71 cents, or $71 per pair of contracts. Breakeven lies at $74.29, while a maximum profit of $1.79, or $179 per pair of contracts, is possible if TGT closes at or below $73.50 when August options expire at the end of this week.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
