Target Corporation (NYSE:TGT) could be looking at another volatile week. Target stock trades ex-dividend today, while earnings are set to hit the Street ahead of the open this Wednesday. The company has worked hard to shake off its missteps of the past couple of years, and Wednesday’s quarterly report could help solidify a TGT rally heading into the holiday shopping season.
Turning toward expectations, analysts are expecting a profit of 83 cents per share from the retailing giant — down from 86 cents per share in the same quarter last year. Revenue is seen faltering 7.5% to $16.3 billion. Optimism is on the rise within the brokerage community, though, as EarningsWhispers.com reports a whisper number of 87 cents per share for Target.
There are still more than a few bearish hangers on, however. Specifically, Zacks data indicates that 12 of the 17 analysts following Target stock rate the shares a “hold” or worse. Still, there is room to grow on the price target front, as the 12-month consensus price target of $74.28 represents a modest premium of only about 4% to Friday’s close.
Elsewhere, short interest could be a factor in a Target stock post-earnings rally. Currently, 39.6 millions shares of TGT are sold short, accounting for 6.9% of the stock’s total float. A continued rally could force the weaker hands here to capitulate to the uptrend and buy back their losing positions.
Click to Enlarge What’s more, short sellers don’t appear to be well prepared for a Target stock rally, judging by TGT’s options backdrop.
Currently, the November/December put-call open interest ratio for Target stock rests at 0.88, with calls only barely outnumbering puts among options set to expire within the next two months.
Overall, Nov. 18 series implieds are pricing in a potential post-earnings move of about 4.34% for Target stock. This places the upper bound at $74.34, while the lower bound lies at $68.16.
Technically, TGT stock has blown past its 50-day moving average and is closing in on its 200-day. A breakout above this latter trendline could set the stage for a more serious bull run.
2 Trades for Target Stock
Call Spread: The Trump rally has kick-started Target stock, and Wednesday’s earnings could be the catalyst that keeps it going. Traders looking to bet bullish on Target stock might want to consider a Dec $72.50/$75 bull call spread.
At last check, this spread was offered at 74 cents, or $74 per pair of contracts. Breakeven lies at $73.24, while a maximum profit of $1.76, or $176 per pair of contracts, is possible if Target stock closes at or above $75 when December options expire.
Put Sell: On the other hand, the market has gone on quite a run in the past week, and Target stock is nearing overbought levels. Unless guidance is solid, TGT stock may remain flat following this week’s quarterly report. Traders not willing to take the risk of an outright bullish play might want to consider a Nov. 18 series $65 put sell position. At last check, this put was bid at 22 cents, or $22 per contract.
As always, the upside to this put sell strategy is that you keep the premium as long as Target stock closes above $65 when November options expire this Friday. The downside is that if TGT trades below $65 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $65 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
